ORAL ANSWERS TO QUESTIONS

COMMUNITIES AND LOCAL GOVERNMENT

The Secretary of State was asked—

Public Transport (Rural Areas)

Robert Key: Whether her policy on community engagement and empowerment takes account of public transport provision in rural areas.

Sadiq Khan: Before I answer the question, may I congratulate and welcome the new members of the Opposition Front-Bench team and wish well those who have gone to pastures new and less green?
	The answer to the hon. Gentleman is yes. The White Paper, "Communities in control", shifts power and influence to citizens and communities across the whole range of public services. In engaging local communities, public bodies need to take account of transport provision and ensure that everyone has fair access.

Robert Key: That is very good news. The problem is that local authorities provide or subsidise transport in the case of school transport, youth services, social services, bus subsidies, car share schemes and over-60s free bus travel; the NHS provides ambulances, hospital car services and hospital patient transport; and Royal Mail provides for 50,000 people a year travelling in their post buses—we have so much ad hocery that it is time for a Government strategy. At the moment, the poorest in our communities always suffer, particularly in large rural areas. I would like this issue to be pushed down to local authority level at the same time as having a coherent strategy and working out the cost of not having a coherent and sustainable transport policy.

Sadiq Khan: The hon. Gentleman has raised a lot of important and serious points. One of the reasons why we are passionate about community engagement and participation is that it improves a service. We need to see in rural communities the same levels of engagement that there are in urban communities. That will lead to improved transport systems. It is for local authorities to decide what bus services to support in their area according to local needs and priorities. In that regard, the hon. Gentleman will welcome the increased investment that there has been this year, as in the past 11 years, for local authorities.

David Taylor: The Department's report some time ago found that phoney consultation was a significant source of distrust among the electorate at large. When people travel a great distance to make their views known to a particular public body, it is very frustrating if they feel that such bodies are only going through the motions. How can the Government prevent charges that they sometimes have phoney consultations and do not listen to the overwhelming results that flood back?

Sadiq Khan: Obviously, we are all against phoney consultation. We must be clear that consultation does not always mean that stakeholders who respond will have their views heard. However, my hon. Friend raises an important point. We must not see a façade where an impression is created that citizens are being consulted, because that only leads them up the garden path and they become more frustrated when services do not improve and meet their desires and needs. We are obviously against that sort of consultation, and if he has any examples to give us we will ensure that we take on board seriously the concerns that he has raised.

Local Involvement Networks

Richard Bacon: What discussions she has had with the Secretary of State for Health on mechanisms to ensure that local authorities with social care responsibilities use funding allocated for local involvement networks for that purpose.

John Healey: Health Ministers and we agree that it is for local authorities to decide how to use the funding that we have given them for local involvement networks. However, they have a clear legal duty to establish LINks and to support their work.

Richard Bacon: I am grateful to the Minister for that reply. However, does he agree that, although it may be for local authorities to make those decisions, they are not all doing so with equal expedition and efficiency? Some networks remain to be set up, and some local authorities are providing an excellent service such as that in Norfolk while others are charging whacking great management fees yet not providing an adequate service. Does he think that there is a role for central Government in taking another look at this?

John Healey: I think that I was clear in my first answer that having provided £84 million from the Department of Health in order for local authorities to be responsible for ensuring that LINks are set up locally to give service users, residents and citizens a greater influence over health and social care services, it is right to let them get on and do that job. Every LINk will have to produce an annual report to the Secretary of State for Health. That annual report will have to identify how much money it is receiving, so if any local authority were tempted to take a slice as a management fee, that practice would become clear—and, I am sure, be discouraged—as LINks get up and running fully.

Gordon Prentice: Why is it taking so long to set up LINks, to follow on from the point made by the hon. Member for South Norfolk (Mr. Bacon)? In Lancashire, we have been without any patient representation for more than a year now, and the nascent, embryonic LINk is going out to consultation again. Why can Lancashire county council and the Government not just talk about the problems that are delaying the formation of this important new body?

John Healey: The first thing to say is that LINks were established only last year through the Local Government and Public Involvement act in Health Act 2007. Money was available for local authorities to start their work in ensuring that those were set up properly from April last year. Every local authority has a clear legal duty to ensure that they are established. If my hon. Friend feels that his local authority is falling short in that legal duty, I encourage him to let me have the details, and I and my hon. Friends in the Department of Health will look into the matter.

Small Business Rate Relief

David Heathcoat-Amory: Question No. 2—[Hon. Members: "Three."]What recent representations she has received on the rate at which small businesses receive relief from business rates.

Hazel Blears: It is very important that we get our numbers right in this debate. I have not received any recent specific representations on the rate of small business rate relief.

David Heathcoat-Amory: May I make one, then? If the right hon. Lady wishes to give an across-the-board boost to the economy in a recession, will she consider dramatically increasing the rate of small business relief, and will she fund it by abolishing the useless and wasteful regional development agencies? They do absolutely nothing—certainly in the south-west—apart from looking after themselves and expanding the public sector. If she does that, I am sure that her colleagues in other Departments would agree that we may even see some green shoots in the economy next year, after we have won the election.

Hazel Blears: I am surprised that the right hon. Gentleman should be asking for an increase in small business rate relief. Perhaps he has a very short memory, but when the rate relief of 50 per cent. for small businesses was introduced in 2003, the Opposition voted against the Bill, and the Leader of the Opposition voted against it. Now we have a request for an increase. The right hon. Gentleman will recognise that the Government have done a huge amount to help small businesses in the current economic downturn, such as the small firms loan guarantee fund, the enterprise fund and the working capital fund. All of that stands in stark contrast to the attitude of the Opposition, which is to do nothing. If he thinks that the regional development agencies have done nothing to help, I suggest that he contact his regional development agency and look at the ways in which it has been able to sustain jobs and business in the current economic climate.

Adrian Bailey: Business rates are, in some cases, a significant expense for small businesses. Given the current Government approach to corporation tax and VAT return, and the problems that some small businesses are suffering, will my right hon. Friend examine the possibility of a flexible approach to the collection of business rates?

Hazel Blears: My hon. Friend raises an important point, and we are constantly examining the ways in which we can help businesses get access to credit to meet their liabilities. We have introduced measures on prompt payment to try to increase cash flow for small businesses, which is important. Small business rate relief benefits just short of 400,000 firms, so they are getting extra help. The changes introduced in the pre-Budget report mean that someone setting up a small business can get rate relief in the year that they set it up, instead of having to be registered from 1 April. That will significantly help small businesses to cope with the demands from non-domestic rates. I understand my hon. Friend's point, but it is important that we continue to ensure that local authorities have the income they need to provide services. Nevertheless, we are constantly looking at ways in which we can help businesses.

Nigel Evans: The Secretary of State knows my constituency well, and sadly, last week, we heard the news that the Kaydee bookshop, which has been in operation for more than 60 years, is to close. She knows that 37 pubs a week are closing in this country, and I have heard of a couple of pubs that have closed their doors recently, perhaps for the last time. She knows that business rates could tip a marginal enterprise into closure. What more can she do, particularly at this time of recession, to ensure greater relief for small and medium-sized enterprises?

Andrew Love: Vote Labour.

Hazel Blears: My hon. Friend makes an excellent suggestion from a sedentary position.
	The hon. Gentleman is rightly concerned about small businesses, and the campaign on pubs is a matter of general concern. However, it is a question of pubs not just in rural areas, but in some urban areas, too. Some rate relief is available, but I am concerned to ensure that those centres of the community are able to continue, and I am looking at some innovative ways to tackle that issue. We all know that many small firms are experiencing difficulty and the Government are putting in place some measures—I read out some of them earlier—to ensure that they get access to finance, which is the overriding issue for small business at the moment. They need that finance on reasonable terms, and without interest rates being hiked up. That is at the centre of our concerns.
	I say to the hon. Gentleman in the kindest way possible that this Government are focused on introducing a range of measures to help business, which stands in marked contrast to the Opposition, who would simply say, "There's nothing we can do." I do not think that that is good enough.

Lindsay Hoyle: We on the Labour Benches do welcome the rate relief that was brought in; it has been beneficial to small businesses. The question is whether we could extend it and give a little more—we know that the current figure is 50 per cent. Perhaps we could extend it to those medium-sized businesses that are also struggling, and put pressure on local authorities, which chase the money with great zeal and put businesses over the edge. Perhaps if they worked together, we could save businesses; that would be a common-sense approach. Any more help is always welcome.

Hazel Blears: My hon. Friend is renowned for his common sense and practicality. I assure him that we are constantly looking at ways in which we can help; we are not inflexible. If hon. Members look at the changes that we made to empty property relief in the pre-Budget report, they will see that we raised the threshold of rateable value from £2,200 to £15,000 because we received a lot of representations. We listened and we acted. That is evidence of the Government genuinely trying, in good faith, to do what they can to help businesses at this difficult time.

Peter Luff: Whatever the past may hold, I think that we all now believe that small business rate relief was a very good idea. The problem is that only half the small businesses in England apply for it. In Scotland and Wales, the rate relief is given automatically. May I express the tentative hope that the Secretary of State will look sympathetically on my private Member's Bill, which is being introduced tomorrow? It will make small business rate relief automatic for small businesses, just as it is in the two other parts of Great Britain that I mentioned.

Hazel Blears: The word "Damascus" came to mind when the hon. Gentleman sought to draw a veil over the Conservatives' opposition to rate relief in the past. I am aware of his Bill. We wrote to local authorities in October last year, reminding them that it is their job to promote the scheme and encourage small businesses to make applications. I understand that my right hon. Friend the Minister for Local Government will meet the hon. Gentleman to discuss his private Member's Bill. It is important to note that the rate relief is designed for those small businesses that occupy only one property. We have to make sure that there are checks in the system so that we do not get applications from multiple property owners. However, I am pleased to facilitate that discussion.

Julia Goldsworthy: The Secretary of State's Department has a very important job to do in supporting local small businesses through the credit crunch, not least because despite the billions thrown at the banks, the terms and charges for many small businesses locally are still being changed without any notice. The Secretary of State has given updated claim figures for small business rate relief, but many businesses still do not receive it. Will she give a clear indication of what her Department is doing to investigate making the entitlement automatic, so that businesses do not have to claim it, and will she also pursue making the payment terms more flexible, if it is possible for Her Majesty's Revenue and Customs to do that? What can the Secretary of State do to support local authorities in offering similar support?

Hazel Blears: I have responded on the issue of automatic payment. As I say, we will look at the private Member's Bill, but I want to make sure that the system has integrity and is very good. At the moment, the information about the small business rate relief scheme is sent out with the business rates bill. Perhaps there is more that local authorities can do to draw people's attention to that application, and we will pursue that. We certainly do not want to hide the relief; we want to maximise take-up, because we recognise the contribution that small businesses make.
	Several hon. Members have made points about the terms of payment and whether we can be more flexible on that. Again, we do not close our minds on that issue, but I remind hon. Members that local authorities have to provide essential services to the community, and that is dependent on high rates of collection of both council tax and non-domestic rates. The money has to be found somewhere. Equally, I am conscious that we do not want to tip an otherwise viable business over the edge and so lose employment opportunities. It is all a balancing act, but we have to make sure that we maximise our income as well as supporting business.

Caroline Spelman: I thank the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), for his warm welcome, and may I say to colleagues how nice it is to be back?
	Business rates are set to rise by 5 per cent. in April, taking the average bill to £12,000 a year, yet today we heard that inflation has already fallen to 3.1 per cent., and the Government's pre-Budget report predicts deflation, with the retail prices index inflation plummeting to minus 2.25 per cent. this year. How can the Secretary of State justify an inflation-busting business rate at a time when so many businesses are fighting for their very survival?

Hazel Blears: I welcome the hon. Lady and the hon. Member for Putney (Justine Greening) to their posts. It is nice to see so many women on the Front Bench. I thoroughly enjoyed debating these issues with the hon. Lady's predecessor—I cannot for the life of me think why, but I did—and I have no doubt that we will enjoy such exchanges, too.
	The hon. Lady may have been away from her current brief for some time, but the non-domestic rates system has not changed. It has always been tied to the assessment of inflation at a particular time in the cycle. She knows that it is essential to try to maximise the take from non-domestic rates, as I said to the hon. Member for Falmouth and Camborne (Julia Goldsworthy), in order to maintain the vital services that local government has to deliver to the communities out there. We all recognise that businesses and individuals are currently hard pressed, and we are doing everything that we can, including raising the reliefs on empty property taxes. The position on that has changed as a result of this Government's decision since the hon. Member for Meriden (Mrs. Spelman) previously had her current brief. We are flexible and willing to take whatever steps are necessary to help people through these times, which, as I have said, stands in marked contrast to the policy of the Opposition to do nothing.

Caroline Spelman: I am sure that the right hon. Lady would agree with me, however, that one of the saddest features of this recession is the increase in the number of empty premises on the high street. Will she therefore confirm that, even with the tiny relief in the pre-Budget report, the new empty property business rates are still set to raise £700 million this year? Does she accept that that additional tax could well make the difference between a business getting by and a business going to the wall?

Hazel Blears: I am sure that the hon. Lady is aware that empty property in this country has been subject to taxes for 40 years or so. We are not talking about an innovation. In fact, the extra reliefs that have been introduced as a result of the pre-Budget report will give relief amounting to £205 million to businesses that would otherwise have to pay those taxes. That is not an inconsiderable sum and is a result of a decision made by this Government. She talks about inflation, but she will know that local authorities had to cope with the spike in fuel and energy prices. Although inflation is now coming down, they have had to cope with real volatility in the system. Therefore, it is important that business rates make their proper contribution to local services. Again, we are bringing forward a raft of measures, ranging from skills support, training and help for apprentices to support for small businesses, the enterprise guarantee system and the working capital system. Those are all innovative steps taken by this Government in the teeth of opposition from the Conservatives, who simply want to stand on the sidelines, wring their hands and do nothing to help people through this difficult period.

Home Information Packs

Angela Watkinson: If she will use her powers under the Housing Act 2004 to suspend the requirement for sellers to provide home information packs.

Margaret Beckett: We have no plans to suspend home information packs.

Angela Watkinson: Surely the Minister has realised by now that home information packs were a bad idea from the outset. Even when the housing market was buoyant, neither sellers nor buyers had the slightest interest in them. Now that the housing market is so stagnant that estate agents are going out of business, the Minister could take this opportunity to abolish the utterly superfluous home information packs without loss of face. Will she do that?

Margaret Beckett: First, let me say to the hon. Lady that the intention—and, indeed, the effect—of home information packs is to provide much needed information for consumers on the most important purchase of their lives. She talks as though home information packs have had no impact and no benefit, but 1.2 million such packs have been issued. They are the most simple way of getting information for that most important purchase. She may feel that it is not important to protect consumers; consumer representatives do not, and nor do the Government.

Clive Betts: Does my right hon. Friend agree that the problem in the housing market currently is not a shortage of people wanting to sell their homes—one just needs to see the number of estate agents' boards around the place—but a shortage of people able to afford houses and, in particular, of first-time buyers able to afford mortgages? Does she agree, therefore, that it would be completely counter-productive at this time to transfer costs from people who are desperate to sell to buyers, particularly first-time buyers, who are working at the very margins of affordability in seeking to buy a home?

Margaret Beckett: My hon. Friend is entirely right to say that the key to the housing market in many ways is the role of the first-time buyer, who will incur no such costs but to whom the packs can provide extremely useful information. We recognise that this information does not take a great deal of time to obtain or, in the context of a house purchase, involve a great deal of cost, yet it can make a big difference to consumers.

Anne Main: I pressed the Minister on this issue when she appeared before the Communities and Local Government Committee on 27 October. At that time, she estimated that £5 million had been spent on marketing the packs, to provide a benefit of only £30 per pack. I said that I was concerned that the packs were becoming outdated in a slack market, to which she said:
	"Of course that is an issue that we are looking at with the relevant authorities".
	She accepted that it would be a problem in a slack market. What exactly has she done since then to ensure that the arrangements are not affected by the slack market?

Margaret Beckett: All I can say to the hon. Lady is that there is no evidence that this is a growing problem, and yes, of course we keep the matter under review; it would be unwise not to. However, while a house remains on the market, the same HIP can continue to be valid. Even if a house is taken off the market, the pack can be used again if the house is put back on the market within 12 months of the first day of marketing. So, in fact— [ Interruption. ] The hon. Lady makes a great deal of noise, but the consumer representatives share our view that this kind of information, on the biggest purchase that most people will ever make in their lives, is of real potential value and actual value. That remains our view.

Jim Devine: Will my right hon. Friend ensure that the packs contain information about factoring and land maintenance companies? I am the chairman of the all-party group on land maintenance, and I have been inundated with complaints from people throughout the United Kingdom who buy a house without realising that they will have to pay up to an additional £400 a year to a factoring company. Nor do they realise that, even if the company provides an inadequate service, they cannot get rid of it.

Margaret Beckett: My hon. Friend is right to identify the fact that, in many cases, people faced with making such a substantial purchase are looking for more information, rather than less.

Grant Shapps: I am not convinced that the Minister really believes that home information packs are the right way forward. If they are so beneficial to the housing market, why was the former grace and favour residence of the right hon. Member for Sheffield, Brightside (Mr. Blunkett)—Government house in Pimlico—placed on the market by the Minister without a fully completed home information pack?

Margaret Beckett: Any property that is put on the market has to have a fully completed home information pack, and I am sure that that one will. I am not familiar with the case that the hon. Gentleman has mentioned, but I am sure that the law will be met by those who are placing that property on the market, as with any other. I would simply say to him what I have already said to his hon. Friends: this provision is of real potential benefit to consumers, and I wish I could say that it was untypical of the Conservatives not to share that concern.

Rob Marris: Can my right hon. Friend tell me what evidence there is that home information packs have, in practice, saved people buying or selling houses any money whatever, or speeded up the process in any way?

Margaret Beckett: Yes, I can. In practice, the evidence shows that the average cost of searches has gone down by some £30, and there are examples of the cost coming down by as much as £120. There has also been some welcome, and expected, market-led innovation. For example, if, for whatever reason, a search needs to be refreshed, or a second search is needed, some estate agents are beginning to provide them free of charge. I assure my hon. Friend that there is an indication that, in some cases, the packs are speeding up sales. They are certainly giving valuable information and, as I have already said, they are reducing costs.

South-west Regional Spatial Strategy

Laurence Robertson: When she expects to make her response to the draft south-west regional spatial strategy.

Iain Wright: The Secretary of State received about 35,000 responses from individuals and organisations to the consultation on her proposed changes to the south-west regional spatial strategy. This is the largest number ever received to such a consultation. My officials at the government office for the south-west are assessing the responses, and the Secretary of State will consider proposals for a revised timetable shortly.

Laurence Robertson: The Minister will be aware of a number of Adjournment debates secured by me and other hon. Members on this issue, in which he has been unable—following guidance, I am sure—to discuss the details. We are constantly told that Ministers cannot talk about the details of the regional spatial strategy. The Minister kindly agreed to a meeting with Gloucestershire MPs tomorrow, but said in an e-mail that he cannot discuss the content of the RSS, and cannot communicate the points raised at the meeting with decision-making Ministers because that would avoid new issues arising that might necessitate a further round of consultation. Surely Members of Parliament should be given the right to discuss with Ministers such an important issue that affects their constituencies. It is not just me who is pressing for this: hon. Members from different political parties across the south-west are very unhappy with the RSS. Surely we have a right to a proper discussion of it.

Iain Wright: The hon. Gentleman makes an extremely important point and summarises the planning position extremely well. He alludes to the fact that we have had a number of Adjournment debates on this issue—he secured one in May 2008—and my right hon. Friend the Secretary of State has answered questions on the issue on the Floor of the House. I take the position that hon. Members should have quick and rapid access to Ministers in order to put their concerns. Having said that, it is also very important to be mindful of the propriety of planning guidance. Paragraph 26 of that guidance is very clear: at the current stage of proposals, when the draft stage has been out to consultation and the Secretary of State is considering those consultations, Ministers involved in the decision-making process cannot make representations. That is fair; otherwise, as the hon. Gentleman says, we would have to have a further round of consultation. That would not be fair and it would delay the consultation still further, which I do not think he wants.

Linda Gilroy: May I say thank you to my right hon. Friend the Minister for Local Government for his welcome visit to Plymouth, where he heard of our ambition to be the engine driver of the far south-west? I would also like to thank colleagues for listening during the period in which we could make representations and be heard. Finally, I would like to observe that we really hope that Plymouth will be reinstated in the final version of the regional spatial strategy to reflect its role as engine driver of the far south-west economy.

Iain Wright: I thank my hon. Friend for that comment and her question. I was down in Plymouth last week—not in my hon. Friend's constituency—and saw first hand the ambition and how good community representatives are in that area. She is aware that the consultation has now finished, so I cannot put what she has said forward to the planning decision maker, but I certainly take on board those points.

Annette Brooke: My constituents find it very difficult to reconcile statements from Ministers that the Government are absolutely committed to protecting the green belt with proposals in the regional spatial strategy for large-scale development in the green belt. Notwithstanding what the Minister has just said, what assurances or reassurances can he give my constituents about the criteria and methodology that the Government will use in assessing the green-belt issues?

Iain Wright: My right hon. Friends the Prime Minister and the Secretary of State have made it very clear that the planning policy arrangements surrounding green belt are robust and have stood us in good stead for something like half a century—and we continue to adhere to them. There has actually been an increase in the number of hectares of green belt since 1997. We have been protecting the countryside—something that the Government will continue to do.

Kerry McCarthy: I entirely appreciate the constraints on the Minister in responding to questions today, but I urge him and his colleagues to take into account the concerns of people in urban areas that implementation of the regional spatial strategy may make it easier for developers to pick off sites in undeveloped areas rather than put their resources into developing regeneration sites on brownfield sites in city centres. I urge him to ensure that we do not lose sight of that objective.

Iain Wright: I certainly take on board my hon. Friend's points. I think that that was made clear during the consultation process. She is aware that I cannot take that forward at the moment, because the consultation period has closed and the Secretary of State is considering the responses, but the issue certainly came out during the consultation period.

Robert Walter: The Minister will be aware that last week the planning inspector upheld a decision of East Dorset district council to refuse planning permission for 60 houses in the green belt at Colehill in my constituency. Can my constituents take heart at that decision, in that the Secretary of State will not persist with her proposals to build in the green belt in south-east Dorset?

Iain Wright: I am reluctant to comment on specific proposals because of the quasi-judicial nature of the function of my right hon. Friend the Secretary of State in this context, but I repeat what I have said in earlier responses. We have robustly defended the green belt, and we have actually expanded it since 1997. We see it as a major, powerful planning tool to help prevent urban sprawl. It is absolutely essential, and we will continue to defend it wherever necessary.

Bob Neill: Perhaps the Minister would like to explain to us how many of those representations relate to the removal of green belt protection from land around Bristol, Bath, Cheltenham, Gloucester, Bournemouth and south-east Dorset. He referred to the quasi-judicial nature of the Secretary of State's function. Will he bear in mind that the Secretary of State's own statement that
	"the proposed changes would result in loss of green belt land"
	flatly contradicts his own assurance to the House, and the Prime Minister's, that such land would be "robustly" protected? May we have quasi-consistency as well?

Iain Wright: Nice line, but I think I can do a bit better than that.
	As I said earlier, we received 35,000 responses to our consultation, the largest number ever. The consultation featured three broad themes: the overall level of housing provision, infrastructure and the regional distinctiveness of the south-west. All those points need to be taken into account, and my right hon. Friend the Secretary of State will ensure that they are addressed.

Community Land Trusts

David Drew: When she plans to make her response to the recent consultation on community land trusts.

Hazel Blears: The Government are committed to community-led development. In October last year, we launched a consultation on how a sustainable community land trust sector could be developed. The consultation closed on 31 December. We have received 63 responses from a wide variety of stakeholders, which we are currently analysing. We will publish the results in the near future.

David Drew: I hear what my right hon. Friend says, and I am pleased that progress has been made with community land trusts, but will she have a word with the Homes and Communities Agency, whose representatives I shall be meeting in my constituency on Friday, to ensure that development of the Cashes Green site—which, as she knows better than I do, is a pioneer site—is accelerated as a matter of urgency? I hope that the whole site will be available because otherwise there will be piecemeal development, which does not help the concept, let alone the practice, of community land trusts.

Hazel Blears: I pay tribute to my hon. Friend's determination and tenacity. This is an innovative policy that requires forward-thinking people to push it forward, and that is exactly what we are doing. A master plan has been developed for the Cashes Green site, which was presented to the public on 8 January, and the matter will proceed.
	The concept of community land trusts is important, and not just for housing development. The whole point of such trusts is to secure community ownership and give communities a sense of being able to influence local services and assets. This is new territory, involving co-operatives, mutuals and, of course, community ownership, which is why it is so important for us to get it absolutely right.

Bernard Jenkin: Will the Secretary of State examine the role of community land trusts, and the possibility of genuinely community-led development, in relation to the provision of Gypsy and Traveller sites? In my constituency it is private developers who are currently submitting applications for development on those sites, and, although such development is entirely contrary to the wishes of the community and local people, it seems likely that the applications will be imposed on them by virtue of the regional assemblies that we thought we had got rid of in the referendum.

Hazel Blears: I congratulate the hon. Gentleman on his ingenuity in drawing those issues together.
	The sites proposed for Gypsy and Traveller provision were proposed by the local authorities. It is not a case of imposition; there has been consultation on the proposals. Provision of this kind is always a matter of controversy, but I think all Members will recognise that unless provision is adequate, we shall continue to experience the problems of people moving from site to site that have caused difficulties to many communities in this country.

David Lepper: My right hon. Friend referred to community land trusts in the context of a co-operative and mutual approach to housing. She will know of the Commission on Mutual and Co-operative Housing, which was launched at last year's Co-operative Congress. Will she examine the findings of the commission's report when it is published, with a view to establishing what further support the Government can give the co-operative and mutual sector in the provision of affordable housing?

Hazel Blears: My hon. Friend raises an important point. There is now a call for evidence and an inquiry into the roles that co-operatives can play in this respect. It is interesting that when people become involved in housing co-operatives, they often go on to set up social and business enterprises in other areas. I am told that in one co-operative in Redditch, around 15 per cent. of the tenants who have been involved in managing their properties are now school governors, and are trying to improve the education system in their area. There are many spin-offs and benefits to mutual ownership.

Social Housing

Simon Hughes: What recent discussions she has had with housing associations on fulfilment of their current plans for social housing in Greater London.

Margaret Beckett: Ministers and officials have been meeting housing associations and the National Housing Federation to discuss provision of affordable housing in the current downturn. In response, we have taken a number of steps to encourage delivery, including bringing forward £550 million of spending to help to provide up to 7,500 new social rented homes earlier. The Homes and Communities Agency has increased flexibility on levels of grant funding to support development. The HCA is working closely with housing associations, including those in London, to maximise delivery.

Simon Hughes: I welcome the Minister's reply. She may know that Southwark council has two very large schemes to demolish the Haygate estate at the Elephant and Castle and the Aylesbury estate a bit further south in Walworth, and to replace them with more affordable housing. Both are supported by London government and by Ministers. Will she ensure that both her officials and people at the Homes and Communities Agency facilitate the passing of the money to the housing associations now? The plans are there and everyone wants the homes to be built, but something in the pipeline is holding them up. The communities of south London would welcome those thousands of good, new affordable homes soon, and they would help the building companies that are looking for work in the affordable sector.

Margaret Beckett: I am aware of the schemes that the hon. Gentleman identified, as well as the need for them and the local community's desire that they should be completed. I am also aware that there have been recent concerns about delivery, and both the council and the HCA are working closely together to decide how to resolve the problems and, hopefully, to overcome them.

Karen Buck: The business model on which housing associations funded affordable homes for rent through shared ownership sales is, effectively, broken. Will my right hon. Friend assure me that she is working with the Homes and Communities Agency to ensure permanent adjustments to the grant regime to plug that gap, to undertake an urgent stocktake of unsold shared ownership properties across housing associations to ensure that none stays empty, and to reject the Mayor of London's proposal to give priority for shared ownership to families whose household income is greater than that of Members of Parliament?

Margaret Beckett: My hon. Friend takes a great interest, and has great expertise, in these matters. I recognise the difficulties that housing associations face at present, and how the expectations about their funding sources, which they have had for some time, have changed. She will know that increased flexibility is being shown, and I hear what she says about her belief that that will need to be the case for some time into the future. We will certainly discuss that with the HCA. I also understand her concern about unsold properties, including those designated for shared ownership: it is my understanding that there is no substantial backlog of unsold units at present, as has been the case. However, if my hon. Friend, or any other hon. Member, has concrete evidence that that remains a problem, I would be happy to look at it.

Justine Greening: I thank the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan) for his earlier words of welcome.
	Back in April 2006, the Government introduced their flagship Social HomeBuy scheme. It was meant to help those people who were ineligible for right to buy, or unable to afford it. But as of June last year it had helped only 103 house purchasers across London, or just four a month. What are the latest figures for Social HomeBuy across London, and why has it not helped more people?

Margaret Beckett: First, like my hon. Friend the Under-Secretary, I welcome the hon. Lady to the Front Bench. May I give her a piece of kindly and well meant advice? She should not pay too much attention to the colleague who is sitting on her immediate right because Social Homebuy is one of his obsessions. It is true that large numbers have not taken it up, but the hon. Member for Welwyn Hatfield (Grant Shapps) always omits to mention that it was a pilot scheme. It is neither the Government's flagship scheme nor the chief element of our HomeBuy Direct scheme. The latter is a portfolio of schemes, which I know that the hon. Lady will find interesting when she has had a chance to study it. Contrary to the hon. Gentleman's observations about a couple of hundred people, 110,000 people throughout the United Kingdom have benefited from our HomeBuy Direct programmes. Recently, we have provided some £400 million of funding in partnership with developers to ensure that 18,000 properties throughout the country are offered to first time buyers. Barratt released some 3,000 towards the end of last week. The hon. Lady will find HomeBuy Direct offers an interesting series of options, which are popular, especially with many first time buyers. I repeat the suggestion that she does her own research in future.

Council Housing Rents

Jim Cousins: If she will suspend or reduce the formula guideline rent increases for council tenants for 2009-10.

Margaret Beckett: The subsidy determination to which my hon. Friend refers includes additional measures, aimed at maintaining affordability for tenants, while addressing councils' ability to raise income. They include the pre-existing protection for tenants, which limits rent increases to retail prices index plus ½ per cent. plus £2. We are aware of the concerns now being raised about inflation and the fixed guideline rent increases. I am looking closely at the position to consider what action may be appropriate.

Jim Cousins: I am grateful to my right hon. Friend for her reply, but she knows that council tenants throughout England face rent increases of between 5.5 and 7 per cent. That is a heavy burden and councils place the responsibility for it at the door of the Government's formula rent guidelines. May we reconsider the matter? Nine thousand tenants in the city of Newcastle pay full rent and the burden on them is especially heavy. They do not want to be in the Cabinet; they want to get through the week. Is my right hon. Friend willing to meet council tenants from Newcastle and me so that we can explore ways through that genuine difficulty for so many decent people?

Margaret Beckett: Of course, I understand and appreciate the concerns that my hon. Friend raises—I am always happy to hear from him about such issues. I am well aware that local authorities tend to say that the instructions are the Government's—I suppose that that is inevitable. However, I am sure that my hon. Friend knows that, although the Government issue guidelines, it is for councils to determine the rents that they set. For example, last year, I believe that the guidelines suggested 5.7 per cent., but the rent levels were 5 per cent. Clearly, there is room for manoeuvre and councils have freedom to act and their own responsibilities. As I said, I am considering the position. A well meant desire to give local authorities certainty about action over two years led to issuing guidelines for two years. Obviously, this year's guidelines must stand, but I will re-examine the implications.

Topical Questions

Ben Wallace: If she will make a statement on her departmental responsibilities.

Hazel Blears: My Department continues to work to build strong, safe communities where people want to work, live and bring up their families. We continue to focus on providing real help for people through the downturn and ensuring that our communities are ready for the upturn. Our genuine help for families and business continues to stand in sharp contrast with the position of the Conservatives, who would do nothing.

Ben Wallace: Hundreds of my constituents live in residential park homes. Those parks are mostly run by site owners who treat the residents with respect, but a minority of park owners exploit vulnerable residents through unfair terms and conditions. When will the Government introduce proper measures to deal with those individuals? Will the Secretary of State meet me and representatives of Lancashire trading standards to try to find a way forward so that we can take genuine, concrete action against those despicable rogue owners?

Iain Wright: I thank the hon. Gentleman for his comments and acknowledge his concerns. We have already introduced measures to try to improve the conditions for the residents of park homes. He will be aware of proposals, about which I will consult shortly, to ensure that owners and managers of residential park homes are fit and proper people. I would be more than happy to meet him and a delegation from Lancaster to discuss those issues further.

Kerry McCarthy: I was pleased to hear my right hon. Friend the Secretary of State express her concerns at the weekend that the recent events in Gaza will have a negative effect on community cohesion, particularly within the Muslim community, and that they could promote radicalisation and the growth of extremism among Muslim youth. What is my right hon. Friend's Department doing to ensure that we do not see that negative outcome, and to ensure that we do all we can to work within that community, and to prevent it from being exploited by extremists from outside it, such as those far-left groups who are keen to jump on the bandwagon and exploit recent events?

Hazel Blears: My hon. Friend has raised a vital issue for all of us to consider in our communities. It is clear that the events in Gaza and the horrific scenes we have all witnessed, particularly the killing of women, children and other civilians, have had a real impact, not just on our Muslim communities, but particularly on those communities in our country. Our prime responsibility now is to ensure that our communities come together and work together, and that we keep the resilience that we have built up over such a long period of time. Naturally, people are angry, but there is no reason why that anger has to be translated into extremism; however, there are some people who will seek to do exactly that.
	Over the last few weeks, the Foreign Secretary, the Home Secretary and I have met with a range of community organisations, and made sure they are up to date with the briefing and that people are getting the message about what this Government are doing to ensure we get a peaceful resolution of the international situation. We also have to be mindful of the increase in—

Mr. Speaker: Order. If the right hon. Lady will take her seat, let me say that I did give some leeway in the earlier questions, but on topicals I want sharp answers, and sharp questions as well. I cannot have long answers on topicals; it is unfair to Back Benchers.

Henry Bellingham: Is the Minister for Local Government aware that the boundary committee's proposal for a single unitary authority for the whole of Norfolk has met with overwhelming opposition? Indeed, I have not yet met a single MP or councillor who is in favour. Does the right hon. Gentleman agree that these proposals are a classic product of a boom economy? Now that our economy has turned to bust, has not the time come for him to say to the boundary committee that it should abandon these very costly, extravagant and political plans?

John Healey: In fact, the new unitary authorities that are due to come into place on 1 April this year are finding that reorganisation is helping them to deal with some of the financial pressures from this economic downturn rather than the opposite, so I am not clear about the argument the hon. Gentleman is trying to make. On the boundary committee's work, he will know that the period before which it must submit proposals formally to Ministers has been extended until 13 February. I know that representatives of the boundary committee have been listening and will continue to listen until that date; they will welcome the representations that the hon. Gentleman and others make, and those representations will no doubt play a part in the proposals that the committee then submits to us.

Phil Wilson: I welcome my right hon. Friend the Secretary of State's comments in recent weeks about its being incumbent upon Government to confront and address the racist propaganda that some organisations put around in some of our communities. What are her views on this, and what else can the Government and her Department do to make sure that this vile propaganda is expunged from our local communities?

Hazel Blears: It is a responsibility not just of our Department but of all of us in politics to make sure that we isolate those far-right extremists who seek to divide our communities. It is essential that correct information is available to all our citizens, to dispel the myths that people coming into our country are somehow getting entitlements which they are not due. Getting proper information about housing and facilities is vital, but so, too, is bringing people together and being united against this far-right extremism that seeks to poison our politics in this country.

Bob Russell: After almost 12 years of a Labour Government, the housing crisis in the country is worse now than it was in 1997. That is because the Government have failed to build council houses. When will this Government bring in and implement the policies of the Labour party conference, or at least try to match the house building programme that even the Thatcher Government achieved?

Margaret Beckett: What the hon. Gentleman entirely overlooks is that when we came to power we inherited a backlog of £19 billion of needed maintenance and repair work in the council housing sector. Had that not been met by the decent homes programme, it would have led to serious difficulties in the future. He asked what we intend to do. We are consulting this week on how to remove the barriers erected by the Thatcher Government that made things extremely difficult and actively discouraged local authorities from being engaged in building.

Ken Purchase: It is welcome for house owners with mortgages that interest rates have fallen, thus reducing their monthly payments. The other side of that is, as my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) mentioned, that council tenants face rent increases of between 5 and 6 per cent. Although it is within the gift of councils to ameliorate that, the grant regime structures the outcome, and I understand that this year it has led to the Treasury benefiting to the tune of about £200 million. Does she appreciate that that is not equitable and that, in the interests of introducing good Labour policy, there should be either a complete stop on this year's rent increases or at least a considerable reduction in the proposed increases?

Margaret Beckett: I know that my hon. Friend has great concern about this issue and that he has encountered some problems in his constituency, about which he has written to me. I simply say to him that if there is a surplus this year, it will be for the first time, because over the years the Treasury has historically made a substantial net contribution towards both house building and house repair. May I also tell him that, as he may be aware, we are undertaking a fundamental review of the structure and system of housing finance, which I hope will report a little later this year? Of course, that underlies the formula and the root of settling rents, to which he has referred.

Andrew George: What can Ministers do about the impact of the well-established practice of upward-only rent reviews, particularly on our town centre shops? As such reviews are accompanied by upward-only rate increases, they are making a major contribution to business exodus from our town centres and creating ghost town centres during the downturn.

Hazel Blears: The hon. Gentleman raises an important point in the current economic circumstances—trying to ensure that properties in our town centres are let is about not only income for the business, but the vibrancy of the town centre. Clearly, many of the negotiations are private ones between landlords and tenants, so the Government are not in a position to intervene in those circumstances. Trying to provide as many incentives as we can to ensure that properties remain let is a high priority for us and for local authorities, and we will certainly examine whether we can give further assistance.

Lyn Brown: Will my right hon. Friend tell me what progress is being made on the multi-area agreement for the Olympic boroughs? Can she tell me what difference she thinks it will make to my constituents?

Hazel Blears: I can tell my hon. Friend that excellent progress is being made on the multi-area agreement for the five Olympic London boroughs. They have come together to work co-operatively—dare I say it, as never before—and they are making great progress. They are concentrating on skills, employment and raising the aspirations and ambition of young people in the area, and that will make a significant difference to her constituents for the future.

Richard Benyon: In 1998, the then Deputy Prime Minister set up the compulsory purchase policy review advisory group. It reported in 2000 in an attempt to make the arcane compulsory purchase legislation simpler, fairer and quicker for all sides. Its report, and a subsequent Law Commission report, means that all the work has been done, but it has been parked in a file marked "Too difficult to deal with". Will the Secretary of State meet the Compulsory Purchase Association and bring this review forward, so that we can have more up-to-date laws that suit both sides of the compulsory purchase argument?

Hazel Blears: Yes. The hon. Gentleman will be aware that compulsory purchase legislation has been visited from time to time since the report that he mentions was published. Changes have been made to try to ensure that the system is more responsive. I have recently responded to a letter from the Law Commission, which, again, seeks primary legislation. All I can say is that there are clearly other priorities at the moment for primary legislation. If people wish to make representations and have a meeting, I am sure that that can be facilitated.

Dennis Skinner: The Minister for Housing will recall that in December she met a delegation from Bolsover district council regarding the need to replace more than 100 prefabricated bungalows and to rebuild in order to start the housing boom in Britain. She said that she would look at the matter. Has she anything to add, because we want to get started? We are not the bankers you know—we mean business.

Margaret Beckett: I am grateful to my hon. Friend. I have not forgotten the very strong case made by his constituent. He will know that there were some difficulties, and we were looking to see whether they could be overcome. I shall pursue the matter with some urgency and write to him again.

David Amess: The last national census resulted in 20,000 people being left off the register in Southend, with dire financial consequences. Will the Government ensure that houses in multiple occupation are properly identified and registered, and will they encourage ethnic minorities, particularly from eastern Europe, to have no fear whatever in returning the forms?

John Healey: Concerns about the accuracy of population and migration data go beyond houses in multiple occupation. That is why the national statistician is leading a detailed programme of work with other Departments and local government, which have a considerable amount of administrative data that can be used to help improve the statistics. That work is important in preparing for the next census, so that we do not have the same flaws as in the last one. It is important also for the next spending review period, so that the Government have the best available population data on which to base policy and funding decisions for the future.

Barry Sheerman: Does my right hon. Friend the Secretary of State know that the regeneration of many of our communities depends on the rebuilding of their further education colleges? What plans does she have to reassure local authorities and colleges that all will be well when her Department gives local government the Learning and Skills Council's responsibility for capital funding?

Hazel Blears: My hon. Friend raises an important point. Many of the most significant regeneration schemes across the country are a combination of retail, commercial and educational facilities. That is why we are seeking to ensure as far as possible that those projects proceed. I am aware of a number of applications that have been made to the Learning and Skills Council, and it is important to ensure that its processes and procedures result in swift decisions. I shall liaise with my right hon. Friend the Secretary of State for Innovation, Universities and Skills to ensure that that is the case.

Simon Hughes: Given that cutting fuel bills and the use of energy is the best way of meeting the environmental challenge, when will Ministers be able to meet the target put forward by many groups last September of an energy efficiency rating of 81 out of 100 for our homes? How many UK homes already meet that target?

Margaret Beckett: I am afraid that I am not carrying that number in my head, but I shall certainly write to the hon. Gentleman about it. I shall also provide an answer to his query. I am not sure whether anyone has set a date by which they think that standard can be met, but it is an important point and I shall write to him about it.

Margaret Moran: Will my right hon. Friend join me in congratulating Luton borough council, which this week has successfully tendered all its infill housing sites to one housing association, providing much-needed housing and community facilities in areas such as Hart Hill, in my constituency? Will she use her considerable influence to ask housing associations to invest in extending existing registered social landlord properties where there is severe overcrowding, as in the case of families in my constituency who have no prospect of ever getting a transfer?

Margaret Beckett: I am happy to join my hon. Friend, who I know takes a great and expert interest in these matters, in congratulating her local community and welcoming the housing provision to which she refers. I certainly take her point, and I am mindful of the fact that, not just in her constituency but across the country, one difficulty is that even where housing has been provided, it is not always the larger housing that families need. I take her point entirely and I am grateful to her for making it.

Andrew Stunell: When does the Secretary of State plan to publish her biennial report on the Sustainable and Secure Buildings Act 2004, which was due to be presented to the House last October?

Hazel Blears: It is a very short answer: as soon as I find out exactly what stage it has got to.

Brian Iddon: For the third successive year, I am afraid that I must complain about the huge increases in the salaries of chief executive officers of housing associations. The highest-paid this year, including his bonuses, has crashed through the £300,000 per annum level for the first time. Who makes these decisions, and is my right hon. Friend ever consulted on them?

Margaret Beckett: I am certainly not aware of ever having been consulted about them. The boards of housing associations would make those decisions. My hon. Friend makes a valid point and I know that there is concern across the House—certainly among those on the Labour Benches—about the levels of some of the salaries and about whether or how they can be justified. We will certainly continue to discuss the matter.

Ann Winterton: Does the Minister agree that it makes no sense in this very difficult housing market for councils to charge full domestic rates on properties that are empty because of a bereavement? It also does not help a sale if the furniture has to be removed. What action can the Government take to persuade local government to be more pragmatic and to react sensibly to what is, after all, reality?

Iain Wright: I take on board what the hon. Lady says. We have put in place a package of measures so that councils have more powers to be more mindful of specific circumstances. She will be aware, for example, of the empty dwellings management orders that can be used. However, the whole point, as she suggests, is to act sensitively and co-operatively with the family concerned. That is what we will encourage local authorities to do.

Point of Order

Barry Sheerman: On a point of order, Mr. Speaker. I am told that I must raise this question with you, because the Modernisation Committee has no powers to deal with it. There is no rule of the House that I can discover that dictates that our Clerks should sit in this Chamber wearing wigs. You yourself, Mr. Speaker, no longer wear a wig. On this day of modernisation in another political system not very far from here, in the United States, would it not show that we were modernising if our Clerks, who work so hard for us, no longer had to wear wigs?

Mr. Speaker: I do not wear a wig, but I prefer the Clerks to wear wigs.

Financial Crisis

Stephen Timms: I beg to move,
	That this House takes note of European Union Documents No. 14938/08, Commission Communication: From financial crisis to recovery: A European framework for action and No. 16097/08, Commission Communication: A European economic recovery plan, and endorses the Government's approach to discussions with European partners on these issues.
	I welcome the opportunity to debate the Government's approach to the European economic recovery plan, alongside the related European Union documents. The world economy is in a serious downturn arising from financial system dislocation. The size and speed of that downturn warrant substantial and immediate action from Governments. Developments in the United States sub-prime mortgage market were the original trigger for the distress in the financial markets that escalated throughout last year, leading on to a severe downturn in economic activity across the world.
	What began as disruption to the functioning of specific credit and money markets has spread and intensified to the extent that all financial markets have been affected. Financial institutions and financial systems in both developed and emerging market economies have been placed under severe pressure and, as credit conditions between banks have become tighter, their ability to lend to businesses and consumers has been restricted. That scarcity of credit for businesses and consumers has further contributed to the downturn and produced a real effect on the lives of individual citizens at home and in other countries, too. That is why it is right and necessary for Governments across the world to take bold action now to support the economy. My right hon. Friend the Chancellor of the Exchequer yesterday set out the further measures that the UK Government are putting in place.
	In October, we took the lead with steps to stabilise the banking system. The euro-area summit of 12 October agreed a co-ordinated approach based on the UK model. In the pre-Budget report, my right hon. Friend the Chancellor announced measures worth around £20 billion between now and April 2010. That fiscal stimulus includes timely, temporary and targeted measures to support demand and to provide real help to people and businesses through these difficult times.

John Redwood: The document also says that any measures should be within the growth and stability pact and should be close to or within the 3 per cent. budget deficit ceiling. Will the Financial Secretary confirm that our budget deficit will be more than 10 per cent. of gross domestic product this year? Is that not well outside the terms of the document?

Stephen Timms: I do not recognise the figure that the right hon. Gentleman gives, but I can tell him that the Commission has recognised that, in these exceptional circumstances, countries—including those in the euro area—may well exceed the 3 per cent. limit.
	As I said, at the euro-area summit of 12 October, we took the lead with steps to stabilise the banking system. In the pre-Budget report, my right hon. Friend the Chancellor announced measures worth around £20 billion. Yesterday, he announced further measures to support the banking sector and to safeguard millions of jobs at risk from continuing difficulties in the financial system. The aim of the measures is to begin to replace the lending capacity lost by the withdrawal of foreign banks and other institutions, and to address the barriers that prevent UK banks from expanding their own lending. They are also designed to support stability in the economy, and ECOFIN has been looking at them today.
	The crisis, however, is global and requires a global solution, so we are also working with partners outside Europe. The G20 summit in Washington in November set a vital precedent for international co-operation. Governments from developed and developing economies debated solutions to the crisis and they agreed on closer macro-economic co-operation and to take whatever actions are necessary to stabilise the financial system and support growth.
	The G20 Finance Ministers will meet under the UK presidency in March, and the G20 leaders will meet at the London summit in April. International co-operation is of the greatest importance, and the European Union, its institutions and member states, are among our most important partners.

William Cash: Is the Minister suggesting that everything being proposed under the Government's measures to deal with the credit crisis is based on European directives?

Stephen Timms: No; in fact, if anything it is the other way round. The measures that we introduced in the UK inspired large parts of the European plan, and of course we were closely involved in the discussions that led up to the plan that is before the House this afternoon.

David Heathcoat-Amory: The Minister has claimed that Britain led the way in monetary policy, but we would not have been able to do so if we had taken the Government's earlier advice—it is the current advice from the Liberal Democrats—and joined the euro, because that would have meant giving up our power of self-government over monetary policy. Will he now repent of that folly and agree that joining the euro would have been a catastrophic mistake? Will he also agree with us that countering the recession will require both fiscal expenditure control and monetary interest rate control, which we can have only if we retain our own currency?

Stephen Timms: I think that the right hon. Gentleman is familiar with the five tests that the Government have set as preconditions for considering entry to the single currency. I shall take his contribution as a statement in support of those arrangements.
	This crisis has impacted on all members of the European Union. The euro area is already in recession, after a fall in GDP for the second consecutive quarter. The latest European Commission forecast expects GDP in the largest member states to fall by between 1.75 and 2.25 per cent. The European Central Bank has taken action in line with the Bank of England and dramatically reduced interest rates, in some cases in co-ordination with cuts made by the G7 central banks.
	The European Union now has the opportunity to use its structures and institutions for decisive, co-ordinated action to respond to the crisis and facilitate recovery. At the end of October, the Commission published a communication outlining initial proposals on how the EU can take united, unified and co-ordinated action to address the crisis. The initial response was later developed into a full framework.
	On 26 November, the Commission published its European economic recovery plan to inspire a co-ordinated response to the downturn. A plan based on that was subsequently agreed by the European Council, and it has two key pillars. First, the Commission calls for a fiscal stimulus from member states equivalent to around 1.5 per cent. of European Union GDP, to be made up of contributions from member states and the EU itself. This pillar is consistent with measures that we announced in the PBR, including supporting general VAT reductions and front-loading investment projects in infrastructure, transport and climate change, as well as further measures for small businesses. France, Germany, Italy, Spain and the Netherlands have all since announced stimulus packages along those lines.
	The plan further stressed that, in these exceptional times, it was necessary for Governments to have flexibility to increase borrowing in line with measures to support the economy, and, as I said a few moments ago, that member states may breach the 3 per cent. of GDP deficit limit outlined in the stability and growth pact. The conclusions from the December European Council reiterated that the revised stability and growth pact provides flexibility for member states to implement measures in the recovery plan without compromising public finances in the medium term. In line with that thinking, we have set out plans for a sustained fiscal consolidation from 2010-11, when the economy is expected to be recovering and able to support a reduction in borrowing.
	The second pillar comprises priority actions grounded in the Lisbon strategy for growth and jobs and designed to adapt our economies to long-term challenges to take advantage, when growth returns, of the new opportunities that there will then be. They include employment support initiatives, enhancing access to business financing, reducing administrative burdens, and promoting the rapid take-up of green products and technologies. We are taking action in those and other areas to help individuals and businesses through this crisis, and other members of the European Union will take similar steps in the spirit of this plan. These measures will help to provide us and our European partners with the means to take full advantage when the economy begins to recover.
	The plan highlights the role of the European Investment Bank in mitigating the effects of the crisis. The EIB has put together a package of €30 billion in loans to help small to medium-sized enterprises, and that is up 50 per cent. on its usual lending to the sector. UK small businesses stand to benefit to the tune of £4 billion by 2011. The plan also proposes to revise the EU budget's financial framework to fund energy interconnections and broadband infrastructure. We are looking forward to examining those proposals in more detail, as the detail becomes available, and discussing them with our EU partners. We very much welcome publication of the plan and the agreement at the December European Council on priority actions at national and EU level.

Philip Hammond: The Financial Secretary mentioned the proposals for the acceleration of energy and broadband projects. It is clear from the Government's response that they were not certain at the time whether that would have budgetary implications for the UK. Is he any clearer now whether the proposals would have budgetary implications for the UK Exchequer?

Stephen Timms: Clearly, if the European Union spends more than otherwise would have been the case, there will be implications, but we are waiting for the detail of those proposals, which I anticipate will be provided quite soon.
	The plan supports our fiscal stimulus, and provides further support for actions to front-load public expenditure, which we have just touched on, and assist small and medium-sized business. The plan and the menu of possible complementary actions that it provides can be enacted in member states as suits the needs of their domestic economies, while producing positive spill-over effects in the wider single market.
	Bold action in a common market requires a common framework for action, not least to protect against competition distortion, so the plan also includes a temporary state aid framework for support to the real economy over the next two years. In the state aid arrangements, we need to take account of the extraordinary circumstances across the European Union, so we welcome the Commission's flexible, pragmatic approach in assessing measures to support both the banking system and the real economy.
	The Commission provided rapid approval of UK actions to stabilise the banking system in October. Since October, 15 member state schemes have been approved, each similar to the UK model of recapitalisation or loan guarantees. The temporary framework also endorses the approach to supporting small businesses via state guarantee schemes. However, the role of the EU in monitoring state aid remains important. There should be no suspension of state aid rules, as they are key to ensuring a level playing field across the single market—and, most importantly, to avoiding moves towards protectionism, which might otherwise be a danger, and towards a counter-productive subsidy arms race. In the near term, it will be particularly important for the Commission to enforce the rules when interventions are not appropriate or well targeted.

William Cash: The right hon. Gentleman referred to a level playing field. Does he not think that in the context of over-regulation, the stability and growth pact, the provisions of the Lisbon agenda and the issue of state aid, the playing field looks more like a battlefield of the Somme? I am thinking of the carnage that has been created in respect of all the rules that we have been told for decades are essential for the European economy. Does all this not demonstrate that all those plans are simply worthless and that the United Kingdom would be much better off with our own economic plans, rather than our being entirely driven by all this European nonsense?

Stephen Timms: I completely disagree with the hon. Gentleman's characterisation. The single market in Europe is of immense value to the UK as well as to the other member states. The ability to produce a plan along these lines to achieve a unified response to the crisis demonstrates once again the value to the UK of our membership of the European Union.

Kelvin Hopkins: My right hon. Friend has talked about the great value of the single market. However, have we not been a dumping ground for continental European produce and had a gigantic trade deficit as a result? We have been able to deal with that only because we have been able to depreciate our currency. Has the single market not been a disadvantage to us, rather than an advantage?

Stephen Timms: I do not agree at all, and I do not believe that the great majority of UK businesses would either. The European Union accounts for a very large proportion of our trade, and the fact that the single market is in place has been greatly to our assistance. It is one of the reasons why in the past few years we have attracted such an enormous amount of foreign direct investment—more than any country in the world other than the United States. The single market has been an important element in that success.

Peter Bone: I am grateful to the Minister for giving way; he is being very generous.
	The Government claim that we led the way on state support. Is the Minister seriously telling the House that if we had had to go to Europe to get the support approved and the European Union had said no, we would have stopped it?

Stephen Timms: I can reassure the hon. Gentleman that we are closely in touch with the European Union on these matters and therefore we do not expect unpleasant surprises in that department.
	It may also be necessary to help countries that have been hit particularly hard by the financial crisis and to support their domestic economies and to prevent cross-border contagion. The G20 summit in Washington affirmed international commitment to supporting emerging market economies through this crisis, and it has been necessary for the Community to provide financial assistance to two of its members in conjunction with the International Monetary Fund. As has been the case in respect of many financial institutions in the current crisis, the member states are fundamentally sound, but the pressure of market conditions and exposure to the advanced economies of the euro area, and elsewhere in the EU, have been severe.
	The EU medium-term balance of payments finance facility provides the opportunity for external financing from the Community. The facility allows the Commission to borrow on international markets and to lend the money on to member states in difficulty, often with support from the IMF. The Commission has worked closely with IMF staff in assessing situations in member states looking for assistance in producing programmes aligned to economic policy conditions and seeking financing for those packages. The Commission and IMF staff will also work closely together in monitoring the implementation with a view to stabilising the situation as soon as possible. Such financing is very important in the current climate. We need EU member states in positions such as those that a couple have encountered to be able to seek support to restore confidence and protect financial stability in order to prevent contagion and protect the functioning of the single market. We welcome the recent decision to raise the ceiling on the EU financial assistance facility.
	This is an extraordinary time in the UK and abroad. We have taken bold action in the UK to stabilise the financial system and restore confidence, and the UK's lead was followed swiftly by our European partners.

Angus MacNeil: Is the right hon. Gentleman concerned by the report in today's  Financial Times showing that in the coming year the UK's unemployment rate will be higher than that of Iceland?

Stephen Timms: I have not read the report to which the hon. Gentleman refers. We are certainly seeing an increase in unemployment right around the world. I was Employment Minister a year ago, and for a period I was able to announce in successive months more people in work in the UK than we have ever had before. The position today looks radically different; that is why we are putting in place the measures that we have announced in the past couple of weeks. The key is to ensure that people who lose their jobs are able to get back into work as quickly as possible, given that there are still more than 500,000 vacancies available.
	We took the right course of action in the pre-Budget report to support the economy with a fiscal stimulus, not least in view of employment considerations, along the lines outlined in this plan, as adopted by other EU and G7 Governments. This is a global crisis that will require a global solution, and we will continue to work closely with others for a co-ordinated approach. The EU is a key partner for us. The plan is a bold step in co-ordinating the response to the crisis for the benefit of all the citizens of Europe. I commend these documents to the House.

Philip Hammond: The motion invites the House to take note of the Commission papers and to endorse the Government's response to them. Hon. Members will have noted that the Financial Secretary told us that the Chancellor has already gone to ECOFIN to discuss them, so people will draw their own conclusions about the Prime Minister's commitment to parliamentary government and how much our deliberations are valued.
	There is much that we can agree on in the Commission paper: its analysis of the situation that we face; the focus on the need to deliver, at last, on the Lisbon agenda; the use of green taxes to drive demand for energy-efficient products; and, especially, the welcome commitment to open markets and free trade. However, if one reads these two documents together, one cannot avoid the impression that a significant part of the purpose in producing them is to claim ownership of the agenda—that instead of seeing a crisis for EU citizens, the Commission sees an opportunity to extend its competence and exaggerate the role that it has played. The Commission says:
	"The EU was able to take collective action when the pressure on financial markets was at its most intense"
	and that this
	"national action inside a set of clear EU principles"
	proved to be the right approach. I have to be fair to the Minister and say that the Government appear to be alert to this case of mission creep, because all they will allow in their response is that the Commission's document is
	"a helpful contribution to the ongoing debate",
	while emphasising that the challenges are very different in the UK, the EU and the international community. That is "Yes Minister" speak for "We've read your document and we intend to ignore it." The Minister needs to be more robust, because the history of UK Ministers dealing with mission creep from the Commission is that unless they are very robust and clear in setting out their case, they tend to find that they get overruled in due course.
	As the Minister said, the context of these issues is global. The problems that arise from this crisis must be dealt with by the world's major economies working together in the G7, the G8, the G20 and other institutions. Britain's focus must be multilateral and international, not merely regional. At least as far as the banking crisis at the heart of the current problems is concerned, London is not just another city within a member state of the European Union. It is a global financial capital in its own right, and on issues of financial regulation, the UK Government must protect the interests of London. Whether we like it or not, in the present circumstances, our private prosperity and the funding of our public services are heavily dependent on the prosperity of the financial markets based in the City of London, and will be for the foreseeable future. Of course, that means an enhanced system of financial regulation to replace the failed regime of 1997, but it must be a system that is designed for the challenges facing London and co-ordinated directly with the Governments of other major financial centres around the world, not one that is intermediated by the EU, the primary purpose of which is, quite properly, the internal regulation of financial services in the European market and not necessarily the promotion of London as Europe's principal financial centre.

Angus MacNeil: Does the hon. Gentleman share my concern about the Government bailing out banks when we subsequently read reports of the very same banks writing off loans to Russian oligarchs in the region of £2 billion to £3 billion? Does he think that that is a wise use of taxpayers' money?

Philip Hammond: None of us likes to read about bank write-offs on that scale, and we all recognise that some very poor professional judgment has been exercised. But I would say to the hon. Gentleman that it was no good the Prime Minister feigning shock and horror yesterday at the fact that British banks have been making loans to Johnny Foreigner. He was happy enough to claim the credit for London's role as a global banking centre. Well, what does a global banking centre mean if it does not mean the lending of money across borders? He should not have been surprised, and I do not believe that he was surprised to discover that British banks have engaged in extensive international lending.
	The UK Government cannot subcontract responsibility for the regulation of Britain's biggest industry. To take the hon. Gentleman's point, it is the UK taxpayer, not the EU, who picks up the bill if things go wrong, and the Government need to set out clearly the limits of any EU-based system of financial markets regulation. The Minister cannot afford to assume that the first priority of everybody in the European Union when they wake up in the morning is ensuring the continued dominance of London in the EU's financial market arrangements.

John Redwood: My hon. Friend makes a very good point. Does he not agree that the problem was that the Government blundered in, making a big cash injection into the Royal Bank of Scotland without any due diligence, audit or professional inquiry, even though there were weeks between the general statement of principle and the final deal? Why on earth did they not do their professional job?

Philip Hammond: My right hon. Friend is absolutely right. No effective due diligence was exercised, and we have to ensure that, as the Government get involved more deeply with the bank, they conduct an effective independent audit of the quality of the assets they propose to underwrite, so that the insurance they propose to put in place can be properly and fairly priced.

Kelvin Hopkins: What the hon. Gentleman says suggests to me that he supports the idea of public ownership, and not just that, but a high degree of public control of how banks behave, especially when billions of pounds of public money are going into them.

Philip Hammond: I do not know which of my comments the hon. Gentleman has interpreted in that way. We had little choice in this situation but to inject public funding into the banks most at risk. The Government cannot allow the UK banking system to fail, which is why the official Opposition supported the action that the Government took in October. It is not something that we were happy about, but it was necessary in the circumstances.

Angus MacNeil: Will the hon. Gentleman give way?

Philip Hammond: No, I must make a little progress, if the hon. Gentleman will allow me.
	The Government's response needs to spell out more clearly and emphatically where there may be a role for the EU and where the challenges that have to be tackled should be tackled multilaterally by the relevant Governments. Of course, the Government have a competitive claim of their own, which the Minister set out. The claim is that the actions taken by EU members are to the credit of the UK Government—that the UK blazed the trail and the EU followed. The Commission claims that national Governments acted according to
	"a set of clear EU principles",
	but the UK response sees it rather as
	"action taken by EU Member States, that built upon the measures...that were announced initially by the UK".
	It is a diplomatic version of Punch and Judy.
	Before I move on, I want to draw the House's attention to something buried in the preamble to the first paper. The Commission states:
	"The shocks hitting the European economy are expected... to reduce the potential growth rate in the medium term".
	That seems to me like a dose of common sense and realism, but it does not seem to be referred to anywhere in the Government's response, and as far as I can see, it is not reflected in the UK 2007 pre-Budget report, which assumes recovery of growth to a trend rate of 2.75 per cent. If that trend rate of growth is not recovered, there will be significant implications for the UK economy and the size of the future fiscal deficit. If the Government disagree with the European Commission's analysis of the likely future trend rates of growth and the impact of the financial crisis on those rates, why does the Government response not address that issue?

William Cash: I am very much encouraged by the line that my hon. Friend is taking on whether the European Union or the United Kingdom should decide the regulatory framework. Would he therefore be good enough to rule out the idea of the creation of a European unified regulatory response to the credit crunch, and to urge that point of view in the shadow Cabinet, in case anybody else might have a different point of view?

Philip Hammond: I thank my hon. Friend for his comments. This is an international crisis and it needs to be dealt with in collaboration with Governments around the world, but it is obvious to me that it would be a mistake to have a regional focus on what is an international problem. Of course we need to work with Governments and major financial markets across the world, but we should not be sidetracked on to a regional agenda when an international response is needed.
	On the broader issue of the global response, the Commission paper is, again, focused principally on establishing a role for itself. It seeks to identify national, regional and international dimensions to the solutions that will be needed, although most external commentators appear to see national and international dimensions only. In the paper, the Commission makes an unconcealed grab for the power to negotiate on behalf of the EU's G7 members. It says:
	"The fragmented representation of the European countries and of the euro area should...be addressed to increase the EU's overall effectiveness and influence."
	Once again, I say to the Minister that the Government need to be clear on their view—they are not clear about it in their response—on the appropriate extent of any EU involvement in what is essentially a multilateral process between the world's major economies.
	I want to turn to the section of the first paper dealing with the impact on the real economy and with the Commission's recovery plan—the most important part of the package. It identifies financial markets, instability and lack of credit as the root of the problem and urges, as we have done, monetary action, a cut in interest rates and support for lending. It then proposes two key further areas of action. One is what it calls priority short-term action grounded in the Lisbon strategy, designed to help alleviate the effects of the recession in a way that contributes to the long-term, supply-side improvements that the Lisbon process identified as necessary for the competitiveness of the European economies. That is exactly the approach that we have urged in our double test for interventions by the Government in a recession; such interventions must help families and businesses that are struggling in the short term, but must do so in a way that strengthens, rather than weakens, our economy for the recovery to come.

David Heathcoat-Amory: Has my hon. Friend detected any recognition in the Commission's papers of the cost to the real economy of the continuing flow and volume of job-destroying regulations? Is he aware that, specifically, the passenger emissions regulations recently agreed show, according to the Government's cost-benefit analysis, that the cost outweighed the benefit, even after taking into account the supposed environmental benefit? Will he commit himself to examining that burden of cost, which undermines our competitiveness, and that of Europe, in the middle of a global recession?

Philip Hammond: My right hon. Friend anticipates what I was about to say. There is no recognition of the conflict with the principles and objectives of the Lisbon agenda that arises from the flow of damaging regulation. The Government's response broadly consists of agreeing, as they have done before, with the objectives of the Lisbon agenda, but they need to focus on the problem of the continuing flow of regulatory burdens. The British Chambers of Commerce estimates that 70 per cent. of the cost burden imposed on business since 1998 flows from European Union regulations. If the Lisbon agenda is to be effective, the European Union has to address that issue.
	I want to focus on the second part of the package, which is described in the Commission's paper as
	"a major injection of purchasing power,"
	equivalent to 1.5 per cent. of GDP. Of course, as the Minister said, that is overwhelmingly a commitment to exhort the member states, not direct Community spend. The Government have seized on that part of the EU proposal to seek to justify their fiscal stimulus package, and the VAT cut in particular, which is now widely perceived to have failed. There is a legitimate debate about— [ Interruption. ] The measure is widely perceived to have failed, but if the Minister wants to take issue with me on that, I am sure that I can dig out numerous quotations.

Stephen Timms: Has the hon. Gentleman seen today's inflation figures, which show a sharp and welcome fall in inflation, reflecting in large part, as the Office for National Statistics has said, the effectiveness of the VAT cut, as it is passed through to consumer prices?

Philip Hammond: I am not sure that the consensus of economic opinion sees the rapid collapse in inflation as an entirely a good thing. We are heading rapidly into deflationary territory, with growth in the retail prices index below 1 per cent. and falling at the fastest rate since the early 1980s. The Minister is far too smart and well informed to think that that is entirely good news. It is good news if the increase in prices is moderating substantially, but having lower prices in the shops does not help people who do not have a job or any earnings with which to purchase things. I can see that the Minister is a "glass half full" man who sees joyous news in this morning's inflation figures, but I am afraid that many people will see in them yet another measure of the calamitous collapse of demand in the economy and warnings of the problems to come, particularly in employment.
	There is a legitimate debate to be had about the role of fiscal policy in rescuing economies from recession and about the behaviour of households and the extent to which it is Ricardian, as the economists would describe it. A lively debate is taking place in the academic literature, with analysis of the experience of previous recessions. That debate has been contributed to by, among others, Professor Christina Romer, the chair of Barack Obama's council of economic advisers, who identified monetary developments as largely responsible for the recovery in the US after the great depression and fiscal developments as contributing "almost nothing" before 1942, when the gearing up of wartime production provided a demand stimulus. Professor John Taylor of Stanford university, another former member of the council of economic advisers, concluded that effective fiscal policy should be limited to allowing the "automatic stabilisers" to operate freely and appropriately.
	It is not my purpose today to rehearse the academic debate. It is sufficient to note that a debate is taking place. Each Government around the world and in the EU will draw their own conclusions, based on their history and experience, about the desirability and effectiveness of using a fiscal stimulus, and we have seen that debate taking place particularly emotively in Germany. However, the Commission's papers, despite the Government's attempts to spin them in a different way, do not support the fiscal action that the Government have taken, as the Prime Minister claimed that they do. In December, he said that
	"the debate about the use of fiscal policy to stimulate our economy and to give direct support for families and businesses in Europe is resolved. Europe favours substantial fiscal stimulus alongside cuts in interest rates...This European set of announcements is the answer to those who...believe that fiscal policy has no role to play."—[ Official Report, 15 December 2008; Vol. 485, c. 813.]
	The European Commission's papers, however, make it very clear that fiscal action must be constrained by the growth and stability pact. Page 7 of the recovery plan states that
	"the budgetary stimulus should take account of the starting position of each Member State. It is clear that not all Member States are in the same position. Those that took advantage of the good times to achieve more sustainable public finance positions and improve their competitiveness have more room for manoeuvre now. For those Member States, in particular outside the Euro area, which are facing significant external and internal imbalances, budgetary policy should essentially aim at correcting such imbalances."
	There could not be a more explicit reference to the UK without specifically naming it.
	The truth is that Britain simply does not have the fiscal room for a stimulus package. We entered the credit crunch with the biggest budget deficit of any major economy. In March 2008, the Government had to concede that, for the seventh year running, the outlook for the public finances was weaker than had previously been forecast. According to the Institute for Fiscal Studies, 16 of 21 comparable industrial nations have reduced their debts and 19 have reduced their structural budget deficits by more than the UK since this Government have been in office. The World Economic Forum has stated that Britain's
	"greatest weakness"—
	stems from our—
	"growing public sector deficit".
	The stark fact is that, as this Government increase our debt to 57 per cent. of gross domestic product and to more than £1 trillion in just three years' time, every child born in Britain today is born with £17,000 of debt around its neck.
	The Commission also notes the need for credible medium-term budgetary frameworks, and the Government's response relies on the claim that fiscal policy has been set on the basis of delivering a balanced, cyclically adjusted current budget and a declining debt-to-GDP ratio once the recession is over. That was the claim of the Minister's colleagues, but I put it to him that he and his colleagues have no credibility when they make such statements. Their Government ran a structural budget deficit through seven years of continuous economic growth, and in each of those years, they predicted a return to balance in two or three years' time. Every year, however, that prediction was postponed by another year. The return to balance was the "jam tomorrow" that never came.
	The Commission's paper argues, as the Minister has said, that the growth and stability pact should be implemented with "flexibility" during the recession, and that corrective action would be required during the recovery. The Government have latched on to that, saying that they agree with the Commission that excessive deficits need to be corrected over time frames consistent with the recovery of the economy. The Minister cited that statement, but the EU is referring to excessive deficits that arise as a result of tackling the economic crisis, not to excessive deficits that are already in breach of the growth and stability pact limit and that were being run before we even went into recession. Those deficits were earning rebukes from the European Union before the economy had even turned down. That was the situation that the United Kingdom found itself in. The Commission's prescription for those with structural deficits before the recession is very clear, and I have already spelled it out. It is that fiscal policy should essentially aim at correcting such imbalances.
	The Government are wrong to interpret these documents as any kind of green light for their unaffordable fiscal actions, which only add to the mountain of debt, hamper the recovery and burden future generations. On the contrary, the warnings to the UK in the Commission's paper could not be clearer, and the UK Government's response is disingenuous in the extreme in trying to interpret it otherwise.
	On the global response to the financial crisis, the Commission is empire building and the UK Government are right to rebuff it, but need to do so more forcefully. On Lisbon and supply-side reforms, the Commission is merely cataloguing the failure to deliver on the agenda agreed many years ago to make Europe the most competitive knowledge-based economy by 2010—an objective that now looks rather a long way from being achieved. The UK Government response merely endorses that agenda once again, rather than identify the reasons why it has not been delivered.
	On the financial markets architecture at EU level, the Government need to dig in and ensure that they will determine the regulatory regime governing Britain's biggest industry and that they negotiate globally on cross-border supervision and information-sharing arrangements that can be done effectively only at a global not a regional level. I do not necessarily regard it my purpose to endorse what the Government do in this area, but I have to say that, for the good of my country and the prosperity of my constituents, I would rather have even this Government negotiating on those matters than the European Commission whose interests are diverse, diffuse and not necessarily focused on the best interests of the UK.
	Finally, on the fiscal stimulus, countries that are in a position prudently to increase their deficits must make their own decisions about the case for active demand management and the risks attached to it, but the UK clearly does not have the scope to deliver such a stimulus without damaging medium-term fiscal stability. The Commission, to its credit, makes that very clear, and the Government have failed to respond to the warning, simply pretending that the Commission document says something different and claiming that the EU has provided cover for the Government's politically motivated actions when it patently has not.
	We cannot endorse this flawed approach, so I urge my right hon. and hon. Friends to vote against the motion.

Michael Connarty: I am always amazed at the Conservatives and how they view the world in which they live. They appear not to realise that there is a wolf at the door, but are much happier talking about a bogey man in the cupboard. In reality, we are facing an international collapse in financial credibility and the banking system, so we should be endorsing what the European Union, of which we are a part in terms of policy and decision making, is doing because it is, in fact, copying a strategy designed by this Prime Minister and this Government. That is the reality of it. Every other President, Prime Minister or leader will try to say that they have put in their bit, but the reality is that it was a headless organisation until we put the plan forward that was endorsed.
	We have debated this issue before in a European debate: both the framework document and the action plan were debated in early December, just before they went to the European Council on 11 and 12 December and were endorsed by the European Union. I am on the record in that debate, speaking about what I hoped would be endorsed—

John Redwood: rose—

Angus MacNeil: rose—

Michael Connarty: I am not giving way so early in my speech.
	The UK acting alone would, quite frankly, not be able to deal with the blows coming from the banking credit implosion—that is what it is throughout the world. I do not use pejorative terms such as "Johnny Foreigner"; I understand the banking system and its international nature. Decisions were taken by some of our so-called great banks—those are the ones that made the greatest errors—so we have the Royal Bank of Scotland with£2 trillion of debt, based on very dubious assets. I studied economics and know what my economics professor would have thought. The Conservative Government took away the rules and we then further loosened them, and he would have been horrified at the leverage on such worthless assets as mortgage debt bundles. This needs to be dealt with on a big scale, and I believe the EU is the best mechanism for doing that.
	I thoroughly endorse the Government's approach. I would have preferred it if they had not only "noted" the documents, but actually agreed with them as well. I often wonder whether people ever take the trouble to read the documents that our European Scrutiny Committee endeavours to read from cover to cover. I shall refer to some that have not been referred to in any detail today. They may not have been read yet, as they were put before our Committee only at its most recent meeting, on 12 January.
	I welcome the increasing flexibility that—notwithstanding the picture painted by Opposition Front Benchers—is a feature of communications from the European Union on how the crisis should be dealt with. The early papers that were before the Committee in December on the framework document and the document on recovery from the financial crisis were a little rigid and cautious. The very good officers of the House who advised the Committee, for example, said:
	"At first blush, some of this"—
	that is, the proposal on reinforcing competitiveness—
	"seems to include acceleration or resurrection of pre-existing Commission ambitions, for example revision of the European Globalisation Adjustment Fund rules or stepping up investment in Trans-European Networks."
	However, the situation has moved on quite a bit since then. I think that Opposition Front Benchers should note the frameworks and endorse them, and also note later documents showing both the Government's willingness to be flexible and—again, contrary to the picture painted by the Opposition—to resist policies of which they were not yet convinced. I shall give examples of that later.

John Redwood: Why does the hon. Gentleman consider this to be a global banking crisis, given that China, India and Japan—countries with colossal economies—have experienced nothing like the problems that the United Kingdom has experienced with the Royal Bank of Scotland?

Michael Connarty: One of our problems is that we became fully involved in a way that I would roundly criticise, without exercising proper caution. There are questions to be asked about the regulatory framework, but we are not here to debate that. I have said the same in statements that I have made both publicly and in the House. The problem began with an attitude towards the banking system that originated with the Conservatives and, sadly, continued under our Government.
	I am willing to speak at any time about the Financial Services Authority and the failings in regard to policies on regulatory reform, but that is not the context in which this debate is taking place. We are experiencing a crisis, and we have seen the collapse of the banking system. It has been an international rather than a national development, affecting economies at different levels, but the socialist-leaning economies of the Scandinavian countries seem to be more immune than others.

Angus MacNeil: The hon. Gentleman mentioned a plan earlier, but the plan that we are currently following is not new. It did not appear in 2008 or 2009; it stems from the problems affecting Sweden in 1992 and 1993. An important part of the Swedish recovery was the setting up of "toxic banks" to take on the toxic assets of other banks, which in the final analysis left the Swedish economy with a total cost of between 1 and 3 per cent. of GDP—less than has already been committed by the United Kingdom Government.

Michael Connarty: As a socialist in the Labour party, I am attracted to the idea of the Swedish model, and if we were to adopt all the other facets of the economy of Sweden—or other Scandinavian countries—I would not mind including the little bit that the hon. Gentleman has just endorsed. However, that is not what we are discussing now, and the Labour agenda does not appear to contain the sweeping changes that would probably be on the agenda of anyone who wished to see a Swedish-style economy in Britain.
	Let us return to the topic of today. I believe that in its first flush the recovery plan was correct, and the framework was correct. It was, without doubt, driven by the Government's ideas and responses, and it is right for us to endorse the Government's support for it. We debated this matter in December, although not all the Opposition Members who are present today may have been present then. However, there are five documents tagged to this debate, which I consider very important because they show how the situation is developing. We considered some of them back on 24 November.
	Document 4938/08 concerns the response to the final crisis. It refers to the new financial architecture and dealing with the impact on the real economy. The aim was to develop the framework subsequently. The document that was tagged at the same time and could have been read with the same bundle referred to increasing the facility for medium-term balance of payments support for member states. One of the first things that happened was that Hungary found that the facility under EU structures was not capable of alleviating its balance of payments problems. In the old days, before the EU and the resulting co-operation, one country would have done down another, damaging its economic ability. I remember that happening under the Conservatives, and I remember very well similar attacks on the currency when I was a young member of the Labour party under the Wilson Government. However, the EU acted responsibly, and extended support for the Hungarian economy and any other economy facing balance of payments problems.
	It is great that we are not now throwing other countries to the dogs to our advantage. We are not short-selling those countries. Sadly, the Government ignored their rule on short selling, and Barclays has been short sold in the past few days. We should never have removed that short selling restriction; we should have left it.

Peter Bone: The hon. Gentleman's speech is well constructed, but if everything is hunky-dory and we are working together as one big, happy family and no country has been singled out, why has our currency collapsed?

Michael Connarty: It is not collapsing because of attacks on our currency. It is falling because of interest rate and borrowing policies. It is falling because of a natural market pattern, not because of an attack by one economy on another, which is what used to happen. Economies would deliberately do down other currencies, but that is not what is happening now. I agree that being outside the euro at the moment is an advantage for our competitiveness, and I am pleased that we are outside it. I would have urged us to go in earlier, but I am willing to recant on that, because our flexibility at this time and in this situation is wonderful.
	The European Union will have to show great flexibility with the Irish situation, or Ireland may not be able to sustain its membership of the euro. European document 14306/08, which we also considered on 24 November, changed the interpretation of state aid rules in exceptional circumstances of financial crisis. It is important to realise that state aid policies would have choked off any attempt to deal with the problem of the real economy or support for the financial sector.
	Another two documents were tagged, and the Committee considered them only last week, on 12 January. The first gave the context for state rules in guidance on the recapitalisation of banks. It is important to consider that, and I shall quote some of the stated aims of that policy, because there is flexibility in that context. Its purpose is
	"contributing to the restoration of financial stability; helping ensure lending to the real economy; and avoiding systemic effects from insolvency of a financial institution."
	That is underpinned by good, sound rules. It continues:
	"Member states' own banks should not obtain an undue competitive advantage over banks in other Member States."
	The policy is about flexibility. Not everyone is happy and everything is not hunky-dory, or whatever the hon. Member for Wellingborough (Mr. Bone) said, but there are signs of willingness to try to create a co-operative approach throughout the EU. We would not have had that without the EU, and I commend the Conservative Government who took us into the European Union. I voted yes then, and I would vote yes again.
	The document also states that
	"state recapitalisation should not distort the domestic market, banks that seek additional capital in the market should not be put in a significantly less competitive position due to state recapitalisations."
	That guidance and those rules, which the EU has agreed, are important. Whether the Commission, Britain, the French or the Germans came up with them does not bother me, nor does it bother my constituents who write to me asking why they cannot obtain credit, and why their bank is taking away the credit that they require for their cash flow to enable them to buy the goods required to manufacture the products to sell to their customers. I have written to the chief executives of the banks of those which have written to me because the banks have to realise that they must show co-operation and flexibility, and the ability exists for them to do that. I hope that we will commend the Government for their endeavours.
	I repeat that Opposition Front Benchers appear to want to ignore the wolf at the door to talk about the bogey man in the cupboard. It is time they focused on the real problem. The Commission is not some sort of animal that is out of control. We have control of the Council and I hope that, after the Lisbon treaty, we will have control in the Parliament of dual mandate, which is important and will democratise the process. If we are not willing to engage in that and simply want to call names across the water, we become increasingly ridiculous, but—thank goodness—the Government are not doing that, as the motion shows.
	The final document that is tagged to the debate is 17606/1/08, which we considered last week, to amend the 2007 to 2013 financial framework. The intention was to change it in such a way that we moved, for example, €5 billion to trans-European energy connections from the defence of natural resources, and thus try to put the money into the real economy. The idea is worth considering. The Government are not currently convinced about it, and the Committee has not cleared the document because we believe that further dialogue is needed with the Government. However, that shows that the Government are not simply jumping in lock, stock and barrel and accepting every proposal that comes out of the Commission. They want to examine it in detail and see how it will affect our economy and our companies. The right framework and the right plan are being pursued, and they should be endorsed.

Philip Hammond: While the hon. Gentleman is on the subject of the budgetary framework, has he considered the impact on UK demand and the UK fiscal position of the much higher price that our contributions to the Union will cost the UK Government as a result of the depreciation of sterling against the euro?

Michael Connarty: I am very conscious of that. I have a fairly good degree in economics and I am conscious that that will be a problem for those who pay in sterling and have commitments that they cannot escape because the value of sterling has fallen. We are in that market situation because of the major trauma throughout the system. I believe that it could have been avoided if we had not been so growth conscious, growth hungry and, frankly, greedy. I say "greedy" because, in many respects, we pursued the same philosophy as the previous Conservative Government—that was the problem. We told people that they could have everything, that they did not need to worry about the future and that they could just borrow and buy. Now it is coming home to roost. It frightens people and may destroy lives for a long time. I am not happy about that. I have a much more rational and probably less profligate view of the way the economy should grow than that which has been pursued for the past 25 years. My constituents regret what may come down the line in the next year. However, we are considering an international economic framework and financial plan, which has increasing flexibility.
	There may be more flexibility and more debate with our Government about the detail, but the House should endorse the Government's actions in supporting the framework and the plan, and I hope that hon. Members will vote for it if it is pushed to a Division later.

Jeremy Browne: There are occasions, albeit less frequent than in the past, when the Chamber feels like the centre of the political world. Today may not be one of those occasions, but we are holding an important debate, and I regret that more time has not been allocated for our discussions.
	Following the comments of the hon. Member for Linlithgow and East Falkirk (Michael Connarty), I emphasise that the Liberal Democrats believe that the European Union has a role in addressing the financial crisis. The contamination of the banking sector and the deficits faced by Governments in advanced economies are international phenomena, and the Government are right to work in the G20 with the Administration that will take over 21 minutes from now in the United States.
	Of course, four of the seven members of the G7 are EU member states. Therefore, we have within the parameters of the European Union clear scope to try to work to our mutual benefit by addressing some of these common problems. The EU is, of course, also our biggest trading partner, and the United Kingdom is part of the single market and is, therefore, to an extent influenced by decisions taken within the overall European Union that impact on businesses and individuals in this country. The EU also has a greater critical mass than the UK. That is a particularly pertinent issue with regard to the banking sector.
	The Conservative spokesman and others have raised the primacy of London within Europe in banking and the financial sector, and I greatly welcome that, but London is now such an international centre, and the scale of the investment—and, in many cases, the debt—held by institutions based in the UK, and often in London, is so vast, that in some cases it threatens to dwarf the ability of the UK Government to deal with, and, if need be, save such institutions. RBS, for example, is now 70 per cent. owned by the UK Government, and if what we read is true, its liabilities are about double the size of the total British economy. If we took on its liabilities and they were put on the overall public balance sheet, we would instantly go from being a country with growing levels of public debt—but levels nevertheless comparable to those of many other leading economies—to a country with much higher levels of public debt. The accountancy might not be done in that way, but the scale of such financial institutions in comparison with the scale of the British state and economy has changed markedly in the last decade, and that has a bearing on how governmental institutions have to regard the current situation. The scale is now completely different from Northern Rock and Bradford & Bingley; now, a few months on, the discussions we were having on them in this Chamber seem quite innocent. When we discuss RBS and Barclays, we are talking about big international institutions.
	What conclusions can we draw from reading the documents put before us and from the debate we are having here in the UK? The first is that the bankers themselves have behaved without honour or shame, and many people would like to see greater contrition from them. Secondly, the UK banking sector, and the regulation of it, has been a failure, and the UK Government need to learn the lessons of that failure of regulation. However, we also need to look at the scope for wider European union and for global regulation. There is a balance to be struck, of course, but when institutions operate around the world and do not recognise national borders, there needs to be some regulatory recognition of that reality.
	The Government need to know the liabilities that we—the taxpayers—are covering. I echo the sentiments that have been expressed, in this debate and elsewhere, that this is a difficult moment for our Prime Minister. We have got used to his lecturing other EU member states on how he brought an end to boom and bust and how they should follow our example in the UK, but we now find ourselves in a rather more humble position, because although the EU may not be driving growth on a global scale, it is certainly not looking sickly in comparison with the UK.
	The EU's framework for action deals with the real economy, and that is the correct focus. There is a need for a fiscal stimulus across the EU to encourage consumer demand, and I do not share the Conservative party view that we should be seeking to choke back consumer demand at this point. Nor do I share—this follows on from the observations made by the previous speaker—the Conservative party's paranoia with regard to the European Union. The shadow Cabinet is split on the Lisbon treaty, on membership of the euro and even on whether the British Government should be temporarily cutting the rate of VAT.
	The Conservatives have not given us a clear answer. They may not like the Government's policy on interest rates, but what do they think interest rates ought to be? The Conservative party is keen on telling savers that interest rates have been cut too low, but I understand that, having rescinded its initial stance of not having any views on interest rates, it now completely supports interest rates of 1.5 per cent.—a tenth of what they were under the previous Conservative Government. What does the Conservative party wish the deficit to be? It says that the deficit is far too high, but the party could give us a percentage indication. The previous Conservative Government ran a public annual deficit of 8 per cent. in the early 1990s. Is that roughly what the Conservative party has in mind at the moment, or is that figure too high or too low?
	I can understand why the right hon. and learned Member for Rushcliffe (Mr. Clarke) has been brought back to mentor the Conservative shadow Chancellor. All I can say is that if the right hon. and learned Gentleman is offering a similar service to the Liberal Democrat shadow Chancellor, the answer will be, "Thanks, but no thanks," because he does not need his hand holding in the same way. Does the hon. Member for Runnymede and Weybridge (Mr. Hammond) wish to intervene?

Philip Hammond: After that rant and tirade I wonder whether it is worth the effort, but the hon. Gentleman did ask a question. The Opposition's position is clearly that interest rate decisions are for the Monetary Policy Committee. If he were to look at the motion that we have tabled for tomorrow's debate, he would see that we acknowledge that the reason why interest rates have fallen is perfectly understandable, as are the decisions of the MPC. We have sought to address the problems facing savers through the tax system—if he is able to turn up tomorrow afternoon, he will hear a little more detail.

Jeremy Browne: I shall be in the Chamber tomorrow, because I diligently attend debates in this House. The Conservative party is very much giving the impression of being a group of politicians seeking to make this up as they go along—perhaps we will have some coherence from them tomorrow. Their instinctive hostility towards the European Union, as put forward by the hon. Member for Stone (Mr. Cash), the right hon. Member for Wells (Mr. Heathcoat-Amory) and others this afternoon, is not advantageous to the UK's position.
	The EU's economic recovery plan offers some useful pointers to the way forward. One of those is the fiscal stimulus, which has been mentioned by the Minister and others. If it is co-ordinated, it will have added effect. The economies of Europe are interdependent to some degree, so there is scope for co-ordinating not only a fiscal stimulus but interest rate policy where that is applicable and likely to be effective. The immediate aspiration is to boost demand in a way that is advantageous to businesses across Europe. It is right to support viable businesses, including through measures such as aiming to speed up the payment of invoices.
	I am very cautious about going down the path of propping up businesses that are simply not able to manufacture a product or supply a service for which there is sufficient consumer demand to make those businesses viable. The United States, for example, needs to be extremely cautious about going down this path to any great degree. There are other businesses that are essentially viable but have short-term cash-flow problems, and it is valid to give them the short-term assistance that they need to get over those pressures.

Philip Hammond: The hon. Gentleman has made a point about US policy on specific industries—I assume it was an allusion to the car industry, in which I know the hon. Member for Luton, North (Kelvin Hopkins) has an interest—so can he tell us what Lib Dem policy is on support for the UK motor industry?

Jeremy Browne: I am genuinely fascinated by what the hon. Gentleman infers. I have never been outflanked so far to the left in any debate in which I have spoken in the House. My position on the car industry is that companies that make cars that people want to buy should flourish, and that companies that make cars that people do not want to buy are unlikely to be successful. I am absolutely gobsmacked if the Conservative party's view is that the taxpayer, rather than funding improved schools and hospitals, should support companies that make cars that consumers do not want to buy.

Kelvin Hopkins: Sadly, the hon. Gentleman is talking nonsense. There is a collapse in demand at the moment, and that is why the car industry cannot sell its cars—it is not because people do not want cars. As and when we recover, one hopes that people will start to buy cars again. If we allow the car industry to disappear in the meantime, it will not be able to produce those cars.

Jeremy Browne: This is a widening of the debate, but the three big car-making companies based in Michigan in the USA have problems that go beyond this immediate economic cycle. Asian car manufacturers have located themselves in states of the USA, mainly in the south. They are producing cars within the domestic American market, and so not necessarily with cheaper labour costs, although they have probably negotiated better terms with their employees. They are producing cars at a cheaper price that more Americans wish to buy. I am afraid that the big three American car manufacturers have become bloated and complacent.
	If we are to learn something from the 1970s, it should be that it is not in the longer-term interests of the economy for the state to continue to support businesses that are not competitive. I am making the distinction between that and the provision of short-term cash-flow support for companies that are essentially viable but find themselves in short-term difficulties. It may sometimes be difficult to distinguish between the two, but it is not that hard in the case of the American car companies. They have problems that, in retrospect, may have been evident for a number of years.
	The third matter identified in the economic recovery plan is infrastructure development, with crucial investment to be brought forward. That is important in this country, where for example the house building sector has dried up, but also right across the European Union.
	The fourth matter is innovation, and what many of us call a "green new deal". That is a matter on which the EU has provided genuine leadership in the global debate, and the high level of environmental consciousness in the EU and among its citizens means that there is scope for it to continue to lead on energy efficiency and greener transport, for instance by producing cars with lower carbon dioxide emissions. The American car-making market has not been sufficiently mindful of that, which is yet another example of the big manufacturers there being behind the curve and not anticipating changes to consumer demand. The EU can and should take the lead on such matters.
	Yesterday, the Commission announced that only Iceland and the Baltic states will suffer a worse recession than the UK. Our economy is anticipated to shrink by 2.8 per cent., unemployment is set to rise towards 3 million in 2009, and the banks are awash with hidden toxic debts that the taxpayer is now having to fund. The Government's own borrowing estimates are constantly being revised upwards, and I ask the Minister whether he or the Chancellor really believe that the UK economy will start to grow again this July. Does anyone in the House or in the country believe that any longer?
	We must offer some hope and some optimism that Britain and Europe as a whole will emerge from this crisis, that we will learn the lessons about greed in the banks, which the hon. Member for Linlithgow and East Falkirk mentioned, and about inadequate regulation, and that we can build a better, greener, fairer and more decent society. I believe that that will be the case once we have got through the very difficult months and possibly years ahead.

Kelvin Hopkins: There is not much time left, so I shall try to be brief. I welcome this opportunity to debate the economic crisis and an EU response to it. We are seeing a series of national responses with some more words about co-ordination and solidarity, with the EU limping along behind and coming up with its own strategy. In reality, it is the national strategies that are being undertaken.
	It is right that other countries are starting to imitate what Britain has done. We have yet to see whether it will be enough or whether it will work, but at least we have taken some strong action. Germany has now followed suit, although it was initially critical. It is beyond the EU's ability to cope with the crisis, because its whole economic philosophy is inherently deflationist and the opposite of what is required, which is reflation.
	The documents that we are considering show some interesting contrasts. The EU is still trying feebly to promote its neo-liberal clap-trap—the very policies on liberalisation, supply-side monetary constraints and so on that have led the world to crisis. The UK Government's response is more realistic and pragmatic and differs significantly in tone from the documents. I am pleased about that. I agreed entirely with the Conservative spokesman when he said that the British Government were a better judge than the European Union of what is best for the British economy.
	Even the EU documents have changed their tone between October and November. By November, the supply-side words were still there—the usual nonsense—but the recovery plan had started to talk about swiftly stimulating demand, words that possibly have not featured in EU documents ever before. They perhaps recall the words of Keynes, who saw his way to creating an economic system that worked after the second world war.
	Co-ordinated reflation was one of the slogans of those who, like me, long supported the alternative economic strategy, as it was called. Co-ordinated reflation is what we need now, but we will not get it if countries cannot indulge to an extent in some defence of their economies. If they are simply going to reflate and suck in imports, they will not benefit their economies. Some degree of protectionism, I think, will happen. It is already happening in America.
	The word "protectionism" has been used as a hostile epithet for the common economic policies that I have supported in the past, but if one looks back to the 1930s, one sees that the depression was caused by deflationist policies, particularly in France and Germany. The hon. Member for Louth and Horncastle (Sir Peter Tapsell) has mentioned that in recent debates, and he is absolutely spot on. When countries reflated behind tariff barriers, it helped them to recover. That was particularly true of Britain. Another way of protecting one's economy, of course, is to depreciate one's currency. We came off the gold standard in 1931, and that helped us to stimulate the economy.
	There is also the question of fiscal stimulus. It might be that in the 1930s America did not benefit quite so much from fiscal stimulation, but Britain certainly did. Let us consider Nazi Germany—I would not imitate everything that it did, but it built like there was no tomorrow. It built a massive arms industry and motorways and put all its people back to work. That was not done by monetary measures but by fiscal stimuli and public spending. The economics, if not the politics, were certainly right. I would have built hospitals rather than arms, but it did the right thing.
	In the EU, a number of countries are going to suffer badly because they are in the eurozone. Ireland is a particular example. In contrast to what the Liberal Democrat spokesman said, a report in  The Independent today suggests that Ireland will suffer most, with a 5 per cent. contraction, followed by Germany, interestingly. Germany has always been lauded as the great success in the past, but it is also a mirror image of us. We are a country with a balance of trade deficit, but the Germans have had a balance of trade surplus. That surplus is in serious danger because of declining demand in the international market. The Germans will have a serious problem. Keynes was absolutely right to say that big surpluses and big deficits were wrong and that countries should be able to appreciate or depreciate their currencies to deal with them. If we want stability in the world economy, we have to allow countries to adjust their economies. Indeed, we must encourage them to adjust their economies to ensure that they do not get strongly out of line, as Germany is in one direction and we are in the other.
	Spain has got problems, and how is Italy going to recover without withdrawing from the euro and devaluing? I think that Italy has to think seriously about its membership of the eurozone. There have been civil disturbances already in Greece, but I think that Germany has a very serious problem. I hope that the Germans are sufficiently intelligent to deal with it; I worry about disturbances in any country, but disturbances in Germany would be more worrying than most.
	This has been a very brief debate and I am running out of time, but I suggest that we must think seriously about reconstructing the Keynesian world that we had between 1945 and 1970. It was regulated and stable, and it grew rapidly, with living standards rising faster than at any other time in our history. We must seriously consider reconstructing the world economy on that basis.

William Cash: On a day like this, with Barack Obama about to make his inaugural speech as we engage in this debate, we must bear in mind the scale of the problem that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) identified clearly. In the context of this financial crisis, do we want more Europe, or less? I believe that the US wants us to have more Europe, and I have disagreed with that view—and with prominent members of my party on it—for a very long time.
	My hon. Friend the Member for Runnymede and Weybridge was right to argue in the context of the City, for example, that it was essential for us to have our own rule-based system. I accept that we might need to share information and attempt to co-operate with EU member states and other countries around the world, but there is a difference between doing that and subjecting ourselves to the rigidities of a legal framework that is not in the interests of our economy or the City of London.
	I turn now to the economic recovery plan. As the hon. Member for Luton, North (Kelvin Hopkins) noted, Europe as a whole is in recession at the moment. There is negative growth in Britain and in Ireland, which is in desperate straits, while Spain, France, Italy and Germany all face serious economic problems. For three decades and more, promises have been made about where the European economy would go as a result of the EU's plans. I remember reading the Cecchini report in the 1980s, which set out all the promises and forecasts about how the euro would operate. All of them have been shattered; as I said in an intervention earlier, it is like witnessing the carnage of the Somme to see rules laid down as the paragons of virtue for Europe's economy lying shattered in the dreadful crisis that we are debating today.
	In fairness to the Minister, he said that there were differences between the UK and other countries. We know that Germany is deeply worried about how Nicolas Sarkozy, for example, is trying to push for more integration. He is doing that, of course, because France is so dependent on Germany, but the Germans themselves have a real problem.
	The documents talk about the need to continue with the stability and growth pact. I remember arguing with my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in November 1996 when, in a previous incarnation as Chancellor of the Exchequer, he advocated the pact. Now it is in pieces, and my right hon. Friend the Member for Wokingham (Mr. Redwood) was right to say that its rules have been stretched to a point that renders them completely untenable. The Treasury has admitted that the United Kingdom's GDP deficit could well be 8 per cent., a figure which I know the Minister will confirm. On the figures that I suggested on 7 October in the fiscal rules debate and since, I would say unequivocally that the figure of £1 trillion is nonsense and that in fact the figure is much nearer £2 trillion and possibly £2.5 trillion.
	If we take into account genuine financial obligations including public sector pensions and so on, we see that the figures are truly horrendous. I therefore strongly urge that we note the fact that the state aid rules are being stretched and that a change in the over-regulation inflicted on our businesses can be achieved only by applying the rule of the supremacy of Parliament, an amendment on which the Conservative party supported me during the passage of the Legislative and Regulatory Reform Bill, both in the Commons and the Lords. That requires the judiciary to endorse the decisions taken in this House and not at the European level, otherwise we will not get the repeal necessary to reduce the burdens on British business.
	The Lisbon agenda does not work either, as Will Hutton indicated when he was a rapporteur in respect of the agenda. On every scale and on every item included in the economic recovery plan, there is no doubt that either the rules have been broken or the established policy does not work, all of which the Minister implicitly admitted by showing that we, like other countries, were having to go down different routes. Because the—
	 One and a half hours having elapsed since the commencement of proceedings on the motion, the Deputy Speaker put the Question (Standing Order No. 16).
	 The House proceeded to a Division.

Mr. Deputy Speaker: I ask the Serjeant at Arms to investigate the delay in the No Lobby.

The House having divided: Ayes 330, Noes 156.

Question accordingly agreed to.
	 Resolved,
	That this House takes note of European Union Documents No. 14938/08, Commission Communication: From financial crisis to recovery: A European framework for action and No. 16097/08, Commission Communication: A European economic recovery plan, and endorses the Government's approach to discussions with European partners on these issues.

Financial Management

Mr. Deputy Speaker: Before I call the Economic Secretary, may I say that as the Front Benchers took 63 minutes out of the 90 on the previous motion, I hope that there will be a little more awareness of the number of Back Benchers wishing to take part in this debate? I shall try to vary the cast to some extent.

Ian Pearson: I beg to move,
	That this House takes note of an unnumbered Explanatory Memorandum from HM Treasury dated 4 December 2008, European Court of Auditors 2007 Annual Report, an unnumbered Explanatory Memorandum from the Department for International Development dated 8 January 2009, European Court of Auditors Annual Report on the activities funded by the seventh, eighth and ninth European Development Funds, European Union Documents No. 12156/08 and Addenda 1 and 2: Protection of the financial interests of the Communities: Fight against fraud, No. 12471/08 and Addendum 1: Annual report to the discharge authority on internal audits carried out in 2007, and No. 12472/08: Report on the progress at 31 March 2008 on the modernisation of the accounting system, an unnumbered Explanatory Memorandum from HM Treasury dated 16 October 2008, European Anti-Fraud Office: eighth activity report for the period 1 January to 31 December 2007, and European Union Documents No. 14480/08 and Addendum 1: Commission Report to the Council on the follow-up to 2006 Discharge Decisions (Summary)—Council recommendations, and No. 14481/08 and Addendum 1: Commission Report to the European Parliament on the follow-up to 2006 Discharge Decisions (Summary)—European Parliament Resolutions; and supports the Government's promotion of measures to improve the level of assurance given on the Community budget.
	I am pleased that we are able to have this debate on EU financial management issues on the Floor of this Chamber for the first time in three years. I appreciate that there are other attractions taking place at the moment, most noticeably the inaugural address of the 44th President of the United States, but Parliament rightly attaches great importance to the protection of the financial interests of EU taxpayers. Even though this debate might be relatively sparsely attended, I am sure that there will be other opportunities to address some of the issues that have been talked about today.

Bob Spink: The Economic Secretary has started generously, and that is characteristic, but what value can we put on any of these documents, and what confidence can we have in them, when the EU is totally unable to get its accounts audited? The reasons for the lack of audit are not minor errors, but major deficits and major spending errors in each of the main heads. What confidence can we have in any of this? Is it not just nonsense?

Ian Pearson: It is not nonsense; it is an important part of the scrutiny process. The hon. Gentleman got to the nub of the question, and in a few moments I will address directly the issues that he raised
	This is a timely debate, because on 10 February, European Finance Ministers will meet at ECOFIN to make their recommendations to the European Parliament on the discharge of the 2007 budget. I look forward to hearing hon. Members' views today; I am sure that they will be useful in helping to shape the UK's position in the run-up to those Council discussions.
	Regrettably, today we are faced with the inability of the European Court of Auditors to give a positive statement of assurance on the EU's accounts for the 14th consecutive year. I want to be clear from the outset that the Government consider the situation entirely unacceptable. It is simply not good enough that the majority of the EU budget suffers from a material level of error; errors affect more than 2 per cent. of expenditure in most policy areas. On expenditure on the structural and cohesion funds, the court estimated error of 11 per cent., or approximately £4 billion. That is a particular concern, as is the Court's opinion that the member states' and the Commission's supervisory systems are only partially effective in ensuring the legality and regularity of transactions in that significant area of EU budget expenditure.
	It is disappointing that the Court was unable to give a positive opinion on agricultural expenditure; last year, it anticipated that it would be able to do so. In that area, it estimates that the material level of error still lies between 2 and 5 per cent., which is between €1 billion and €2.7 billion. European Union taxpayers deserve better.

Philip Davies: It really is not good enough for the Minister to say, "It's not good enough of the European Union." Surely the problem is that each year the accounts are not signed off, but the following year the UK Government give even more money to the European Union. In what other case would the Treasury agree to give ever more money each year to an organisation that had not had its accounts signed off properly? Surely the answer is for the UK Government to say, "We won't give you any more money until you get your accounts signed off properly."

Ian Pearson: I certainly agree that European Union taxpayers deserve better. Before turning to some of the key actions that we believe are needed to deal with the recurrent problem, I want to mention the improvements that have taken place in recent years. In many instances, they are in large part due to the UK's continued pressure on financial management issues.
	The European Court of Auditors has again been able to give a positive opinion on 40 per cent. of EU budget expenditure. That compares to 35 per cent. in 2005 and just 6 per cent. in 2003. It is not good enough, but still a significant improvement. This year, the Court for the first time gave a positive opinion on the reliability of the EU's accounts with no reservations. The accruals-based accounting system introduced by the Commission in 2005, with our support, is now fully on stream and is successfully giving the Commission greater control of its day-to-day finances, enabling it to produce more accurate financial information. The estimated level of error for agricultural transactions outside rural development programmes remains "immaterial", and the whole European agricultural guarantee fund, which makes up the majority of agriculture expenditure, has received a positive statement of assurance from the Court.

Bob Spink: When can we expect pragmatic progress on reform of the common agricultural policy, and when that progress takes place, what financial benefits will there be for the UK? What savings will be passed on to the UK? What cuts can we make to the amount of money that we are providing to subsidise agriculture in the rest of Europe?

Ian Pearson: As the hon. Gentleman is aware, it is a long-standing policy of the Government to seek fundamental reform of EU finances. Spend on agriculture accounts for 40 per cent. of the EU budget; we do not believe that that faces modern realities, and we will continue, through the review process that is under way, to ensure that we negotiate and make our points clear.

Peter Bone: When we agreed to the massive increase in contributions to the EU, was it not the Government's position that we did so only because, during the French presidency, the CAP was to be reformed and there would be a massive reduction in expenditure? That just did not happen.

Ian Pearson: There has been reform, although in the UK's view there needs to be further reform. The hon. Gentleman will be aware that the EU budget is going to go down in this financial year, compared to the previous financial year. I would have thought that he would welcome that.

David Heathcoat-Amory: Will the Minister comment on page 210 of the pre-Budget report, which shows in a small footnote that our net contributions to the EU budget are increasing from £2 billion this year to £6.5 billion in two years' time? In the light of the appalling mismanagement and waste shown by the European Court of Auditors, to which he has just alluded, can he instance any other Government programme that is increasing by that magnitude?

Ian Pearson: I do not have to hand the detailed figures that the right hon. Gentleman has quoted, so I cannot verify or comment on them. However, if I can find an opportunity to look at them during the debate, I will certainly respond to him in closing it.
	I must emphasise that the disappointing error rates highlighted in this year's report should not be mistaken for widespread fraud in the European Union budget. As the 2007 "Fight Against Fraud" report makes clear, overall levels of estimated fraud remain relatively low, at approximately 0.2 per cent. across the 2007 budget, affecting 0.1 per cent. of agriculture spending and 0.3 per cent. of structural and cohesion fund spending. No level of fraud or corruption can be tolerated, and I welcome the increased activities of the European Anti-Fraud Office to stamp out the fraud that exists.
	However, fraud is not the main issue that we face; it is administrative errors that lead to payments that do not fully conform to the regulations in place. It is clear that much more still needs to be done by all actors involved, across the European Community, to reduce the number of irregular payments made each year. We will keep pressing the Commission to do three things. First, it should continue to seek opportunities to simplify the procedures and regulations governing expenditure, the complex nature of which is repeatedly highlighted in the Court's report as the cause of so many errors. Secondly, we want more done to ensure that effective internal control standards are rolled out across the board. Thirdly, we want the Commission to work with programme co-ordinators and the ECA to agree a common interpretation of programme requirements early in an expenditure period.
	Equally important, however, is the crucial role that member states have to play in the process. Agricultural and cohesion fund spending make up more than 80 per cent. of EU expenditure, most of which is managed at the member state level. Only when member states take full responsibility and act to reduce the number of errors in the transactions that they manage will a positive statement of assurance be obtained. The UK will continue to keep up the pressure and to lead by example on that front. We did so recently, in July, by publishing the first annual consolidated statement on the use of EU funds in the UK, along with the National Audit Office's full audit report, which gave an unqualified opinion on the regularity of transactions in the United Kingdom.
	That initiative will improve the accountability to Parliament of the use of EU funds in the UK and help to provide increased assurance on our use of such funds to the UK taxpayer. It will also highlight any weaknesses in our control and management systems, helping us continually to improve our management of EU funds. The UK's statement, along with those published by Denmark and the Netherlands, has been welcomed by the Commission and the ECA, and we will continue to encourage other member states to follow suit.
	Finally, it is important that we continue to make the case for more effective and efficient expenditure. As well as having to be spent properly, taxpayers' money must be spent well. We believe that some measures could be taken immediately to improve matters. Better use should be made of the European Court of Auditors' performance reports, to inform the budget-setting process and to ensure that money is allocated where it will deliver results. We also believe that a clearer link is needed between high-level priorities and the budgetary implications in the Commission's annual policy strategy, to enable more effective scrutiny of allocations proposed by the Commission.

William Cash: The Minister might be aware that I am the chairman or vice-chairman of several all-party parliamentary groups dealing with Africa, in particular the all-party group on water and sanitation in the third world. Does he accept that the increase in the number of cases in Africa in which OLAF has had serious difficulties is a matter of grave concern? Effectively, when the external aid is itself subject to fraud on the scale that appears to be evident in Africa, it means that people there are not getting water and are dying of cholera. Does the Minister not agree that the necessity to link up with the Department for International Development is essential?

Ian Pearson: I certainly agree that links with DFID are very important, and of course fraud is simply unacceptable, wherever it takes place. The hon. Gentleman referred to the budget for Africa. The EU's international budget has been the subject of substantial discussion, and the European Court of Auditors looks at it just as it looks at the other elements of EU expenditure. The United Kingdom's objective is to ensure that we continue to make progress on ensuring that the Commission is spending money in the right areas, spending it efficiently and effectively, and cutting down on error. Also, as I said earlier, we must ensure that the individual member states that co-manage much of the European funding spend that money in the right directions, take full responsibility and cut down on error.
	More fundamentally, we need to continue to work tirelessly to refocus spending—a point made earlier by the hon. Member for Castle Point (Bob Spink)—to meet the challenges of the 21st century, through the review of the budget process that is now under way. In our view, a budget that devotes such a high proportion of spending to the common agricultural policy clearly remains in need of far-reaching reform, and we will continue to make those points very strongly.
	Before I finish, I want to address the point about the depreciation of sterling that a number of hon. Members raised during the previous debate.

John Reid: I have waited until my hon. Friend reached his final remarks before asking him a question that is pertinent to the intrinsic message that he has been sending out today, which is that the efficient working of the European Union depends on three things: oversight; transparency; and proper regulation and efficiency. Are the Government considering taking the burden of the lessons relating to the internal regulation of the European Union and applying it to external institutions at European level, including the banks? Are there not lessons to be learned from the documents that we have been reading today, on the subject of this debate, which would encourage us to move towards some kind of controlled exchange—at European level as well as in regard to sterling—incorporating oversight, regulation and, essentially, transparency? Will he consider looking at that proposal at Government level?

Ian Pearson: I know that my right hon. Friend has done a lot of work in this area, and that he has strong views on these matters, which he is putting forward across other parts of the Government at the moment. Clearly, what we are talking about here is the financial management of the EU budget and its spending. He rightly made a point about the banking system, and he will have seen the announcement that the Government made only yesterday on further support to ensure the stability of the banking system and the continued lending that we believe to be absolutely necessary. Clearly, there are lessons to be learned internationally as well as nationally from the financial crisis, but as they were touched on in the preceding debate, I will not deal with them substantially here. Nevertheless, my right hon. Friend makes an important point.
	I said that I wanted to speak about the depreciation of sterling and its effect on EU budget contributions. I think that there is perhaps some misunderstanding among some Members as well as among people outside about the impact of sterling's recent depreciation on our contributions to the EU budget. That depreciation will lead to a small increase in UK gross contributions, but it is likely to be more than offset by an increase in the sterling value of UK receipts, which will mean that the UK benefits rather than loses out in net terms.
	It is not the case that if the pound depreciates by 20 per cent., UK contributions increase by 20 per cent. The actual effect is much smaller. Let me explain why. UK and other member state contributions are not fixed in cash amounts, but are based on country contributions, largely made as a fixed proportion of their gross national income as measured in euros. Depreciation of sterling therefore acts to reduce our budget contributions in euros, creating a budget shortfall that all member states must make up in proportion to their GNI. While the UK incurs some costs, they are offset considerably by the remaining member states. We pay our GNI share of the shortfall—not 2 per cent., but our GNI share, which is likely to be roughly 12 per cent. of the total budget, so it amounts to a 2.5 per cent. additional contribution. On the other hand, there is generally a one-to-one effect on receipts, so a 20 per cent. depreciation of sterling will see UK receipts rise by 20 per cent. Although contributions are larger than receipts, the net effect will be far less than 20 per cent., meaning that we are likely to gain overall. I hope that that is helpful in explaining the overall budgetary position.

Peter Bone: It is useful to hear that from the Economic Secretary, but I have here a document signed by him that says that in 2009-10, our budget in the EU will increase by €670 million, which seems somewhat at odds with what he just said.

Mr. Deputy Speaker: Order. I am sure that this is extremely interesting to the House, but it is actually moving outside the scope of the several documents that we are supposed to be debating.

Ian Pearson: I will therefore not pursue this matter; I am sure we will have further opportunities to do so. I felt it important to correct the misperception out there at the moment that the recent depreciation of sterling will have a significant impact meaning that we will have to pay more to the EU budget, which is not the case.
	I have outlined the key points that we intend to take to ECOFIN.

Bob Spink: rose—

Ian Pearson: Before I finish, I give way for the last time to the hon. Gentleman.

Bob Spink: I was grateful to the Minister for his explanation regarding depreciation, which I thought was germane to financial management in Europe. On financial management, given that the recession will be harder and deeper in the UK than in much of the rest of Europe, and as the UK is subsidising the rest of Europe through the EU recovery plan, will the Minister remind us just how much the UK will be putting into the EU recovery plan to finance other states that are doing better than us?

Mr. Deputy Speaker: Order. I think that my ruling on how germane that subject was should be accepted by the House.

Ian Pearson: I am sure that the hon. Member for Castle Point raised those points in the previous debate, which dealt principally with the economic recovery plan. The issues that we have debated today are important when it comes to the effective and efficient management of EU budgets—by the Commission itself and by individual member states.
	Although some improvements have been made, further major improvements—which I have described today—are clearly required. We intend to take them to ECOFIN, and to include them in the ongoing financial management discussions that we hold in the Commission and the other usual forums.
	I look forward to hearing hon. Members' views today.

David Gauke: I shall bear your strictures in mind, Mr. Deputy Speaker. I think that a number of Members will wish to speak—those, that is, who have not been distracted by the inauguration speech of President Obama. The challenge for us, of course, is to find the words and phrases that shall resonate throughout the world and through future generations. Are we capable of doing so? I suspect that the answer is "No we can't", but none the less we have an important issue to debate, and I am grateful to the European Scrutiny Committee for enabling us to do so on the Floor of the House.
	This is not the first occasion on which I have represented my party in these debates. It is, I think generally, with a degree of weariness that we address this issue—that probably applies to Labour Members as well—because yet again we are faced with the European Court of Auditors' failure to sign off the European Union's expenditure. Once again the Minister says that that is unacceptable, and once again the Opposition say that it is unacceptable. The Minister has outlined some of the ways in which the Government seek to address it, but, if we are honest, all of us expect to be here—or upstairs in Committee—in the same position next year, with the European Court of Auditors having failed to sign off the 2008 accounts.
	There is that sense of weariness, but there is also a sense of frustration. I think that that applies regardless of one's views on the European Union. It is hugely frustrating that, at a time when we are all tightening our belts—households, businesses and indeed Governments, although some of us perceive greater urgency than others in that regard—huge amounts of European Union funds are still being wasted by the EU and by member states. The fact that that money is not being spent wisely is all the more significant in the light of the point made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) about the increase in our contribution.
	I have no intention of becoming involved in the debate about the impact of depreciation generally, and I am grateful to the Minister for his helpful explanation to the House, but the fact remains that—as has already been pointed out—we have seen an element of our rebate negotiated away, and it would be helpful if the Minister could update the House on that. When we discussed the value of the rebate that had been negotiated away, this time last year and in the debate on the legislation that formalised the arrangement, the cost was estimated at £7.4 billion over the next accounting period of six years. I hope that when he winds up the debate the Minister will have an opportunity to give us some idea of the updated cost of the rebate surrender, because I suspect that there is such a cost, and the fall in the pound is expensive to United Kingdom taxpayers in that context.
	The first question that we must ask ourselves in relation to the European Court of Auditors is "Have things got better?" Every year some improvement is expected, but it appears that the answer is no. Since 2006-07 the value of irregularities has increased from €804 million to €1,048 million, and over the same period the value of fraud has increased from €189 million to €209 million. I take the point that, for the vast majority of the money involved, the problem is not fraud; it is irregularity, but it is not always clear when one becomes the other. Some reporting from member states simply states that something is an irregularity, and there is insufficient explanation of what constitutes fraud, so it is not always clear.
	Under the individual budget headings, the number of irregularities in the structural and cohesion funds has increased by 19.2 per cent. to 3,832, and the value of those irregularities has increased by 17.7 per cent. to €828 million. On agriculture, the Minister, to be fair, highlighted that last year's Court of Auditors' report anticipated that the irregularities would be addressed. Indeed, the then Financial Secretary, the right hon. Member for Liverpool, Wavertree (Jane Kennedy), spoke about the matter last year and highlighted it as one about which we could be optimistic. But serious irregularities are found in one fifth of all payments sampled in that very sector, which was supposed to be improving.
	Some people defend the Commission by saying that the problem is all the fault of member states. I, for one, acknowledge that there is an important role for those states, and that there are failures at that level, but the Commission is ultimately responsible for the legality and regularity of transactions underlying European Community accounts; it designs the paperwork that is too complex to understand; and it fails to check that the paperwork is properly completed. The European Court of Auditors is clear about that. It says that the Commission is unable to demonstrate comprehensively for 2007 that supervisory and control systems are sufficiently effective in mitigating the risk of error in certain policy areas. The Commission has a role, but is failing to perform it.
	A spokesman for the Commission has said that it is not all its fault, and that blaming it is like blaming a referee for all the fouls committed in a football match. I am a football fan and that may be a fair analogy, but when players in a football match are kicking lumps out of each other and the referee fails to enforce the rules adequately, the referee is responsible and should not be allowed to continue to referee matches. The Commission is failing in its responsibilities.
	When the UK held the presidency, it said that it would focus on fraud and irregularities, but years later there has been little progress. When the noble Lord Kinnock was the Commissioner responsible for such matters, he said that he would tackle the problem, but his most notable action was to sack a whistleblower who identified fraud and irregularity. A key objective of the Barroso Commission has been to address the matter, but it has failed.
	The Court of Auditors, in the context of the action plan developed by the Commission, which it tried to implement and to which it points to show that progress is being made, said that
	"the Commission is not able to demonstrate that its actions to improve supervisory and control systems have been effective in mitigating the risk of error in large parts of the budget. The court does not yet find evidence to support the impact of the action plan claimed by the Commission."
	Indeed, one MEP estimated that it will take 20 years to obtain a statement of assurance. When does the Minister think such a statement will be delivered on European Union expenditure? How long must we wait?
	I said that there is a role for member states. How does the Economic Secretary think the Government are performing with regard to irregularities in EU spending? The only cohesion spending programme sampled by the Court of Auditors showed that the UK has only a partially effective financial control system. This time last year, we debated in some detail the finding that European regional development funds in the north-west of England had not been spent appropriately, and the Commission was seeking to claw back some £20 million. The BBC and  The Times reported in November last year that the Commission was seeking to claw back in total—this does not apply to just one year's expenditure—some £190 million. Can the Government confirm that that is the case? What is their estimate of the funds that may be clawed back by the Commission and how satisfied are they generally that they can spend European Union money without irregularity or fraud?
	Once again, there have been significant failures by member states and the Commission, and there is a depressing lack of progress. When will something be done? The widely held view is that there is something endemic, and perhaps institutional, about the problem. Member states raise taxes, and make contributions to the European Union which are then divided among member states to be spent, but there is an essential lack of ownership of the expenditure from the European Union. No one really believes that it is theirs, and the same level of care and attention that one hopes is given to member states' own money is not applied to anything like the same extent to money from the EU. Consequently, there is failure after failure, irregularity after irregularity, and levels of fraud that shame member states and the Commission.

David Drew: One area that the EU has signed up to do something about is tax havens and ensuring the legitimate use of money. President Obama has also made some straightforward statements about that. Is that not something that the EU should press as a matter of urgency, because it involves not just money that is spent formally through the budget, but money that works its way through the system, often through those tax havens?

David Gauke: I am grateful for that observation. It is right to tackle tax havens and to share information with offshore centres as much as possible. That effectively means obtaining information about what happens in those centres. Whether that is a European issue, or whether it is best done by member states, it is clearly important. I do not know how central that is to our debate today, but I am grateful to the hon. Gentleman for his observation.
	We sometimes go through the motions in such debates. None the less, the issue is hugely important. British taxpayers are becoming increasingly frustrated, and look to the Government to do something about it, but year after year we return to the issue with little sign of progress and no clear sense of direction from the Government. One detects weariness on the Government's part that there is little that they can or will do. That is unacceptable. Greater efforts should be made, and there is a need for greater transparency in the system.

David Heathcoat-Amory: My hon. Friend has made the good point that reform is required. Of course, reform was mandated seven years ago in the Laeken declaration, when it was realised that Europe was too remote, bureaucratic and wasteful. Does he find it extraordinary that the Lisbon treaty and the European constitution out of which it grew have nothing to say about the matter? The acknowledged weakness, which has become a scandal, was not addressed in the very instrument—the Convention on the Future of Europe—that was told to reform Europe. Will my hon. Friend, in what are clearly his closing remarks, commit himself and our party to undertaking a genuine reform process, which goes to the root of the problem, rather than simply building stronger and more powerful institutions that are even more remote from the citizen?

David Gauke: I am grateful to my right hon. Friend for his comments. I do not know whether he intends to make further remarks in the debate, but he makes an important point. If I may sing his praises, I understand that, when he served on the Convention, he was almost alone in arguing that any reform of the European constitutional documents should focus on the subject of our debate. Too easily, member states and the European institutions focused on closer integration and building up the institutions rather than addressing the real concerns about what the European Union currently does. I have no doubt that one of the biggest concerns of people in this country is the EU's failure to spend money wisely, and without irregularities and fraud.
	Future reform and attempts to change the structures and so on must focus on bread and butter issues and address the effective working of what we have, rather than effecting some utopian—or dystopian, depending on one's point of view—vision for the European Union. I am grateful to my right hon. Friend for making that point. Serious reform is necessary, it has not happened yet and there is no sign from the Government that it will happen. It is time that the matter was taken seriously.

Nicholas Winterton: I have got in in the nick of time. Will my hon. Friend go a little further in answering the question that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked? He has gone a long way, but bearing in mind that the European Union has destroyed our fishing industry and is destroying our aluminium industry—I think that I can get that in under "Financial Management"—is not my right hon. Friend's question about getting a commitment from Her Majesty's Opposition a good one? Will my hon. Friend go a little further and say, "Yes, we will include that in our manifesto"?

Madam Deputy Speaker: Order. I remind hon. Members that we are debating the motions before us. If the hon. Member for South-West Hertfordshire (Mr. Gauke) wants to give a brief indication to the hon. Member for Macclesfield (Sir Nicholas Winterton), that would be acceptable.

David Gauke: I am grateful to my hon. Friend and also for your guidance, Madam Deputy Speaker. I remind my hon. Friend that I am here to speak about matters to do with financial management, but I daresay that those who make such decisions will listen closely to his words, as they always do.
	There is a frustration that the European Union in recent years has focused not on reform but on, for example, the treaty of Lisbon, which my party continues to oppose. The sooner the European institutions focus on the subject of our debate, the better.

Michael Connarty: European debates are a bit like buses—we wait for one for ages, then three come along at the same time. For the first time, we are holding the debates on a Tuesday—they normally happen on a Wednesday to ensure that many members of the European Scrutiny Committee have to choose between its Committee meetings and the debates in the Chamber. Today is a Tuesday—it coincidentally happens to be the day of the inaugural address by the new President of the United States and, when I was voting, I noticed from the crowds surrounding the televisions that that seems to be the point of interest rather than European audit. However, that does not mean that European audit is not important and I am pleased to be here, given that, as Chair of the European Scrutiny Committee, I would not normally get to debate the subject on a Wednesday.
	I believe that the glass is half full—indeed, it is almost three quarters full and heading in the right direction. It was interesting to read all the documents in preparation for the debate. Our report of 12 January, which deals with the implementation of the 2007 European Union budget, concludes that
	"the European Court of Auditors (ECA) identifies weaknesses in the procedures for financial control and management"—
	that is an ongoing debate—
	"such that again it is unable to give wholly unqualified Statements of Assurance for the General Budget and the European Development Funds."
	In the past, the European Court of Auditors has refused to give unqualified assurances of any kind. This time, it has been slightly more positive, not by reducing rigour but by perceiving the benefits of the changes that have taken place in the past few years.
	Our conclusion continues:
	"The document identifies some positive developments in improving management of the Community's financial resources and we note the Ministers give relatively positive assessments of the situation."
	My hon. Friend the Economic Secretary repeated that this evening. The report goes on:
	"But the need for further improvements in financial management and control is still clear."
	That sums up our position.
	We recommended the debate because we believed that it was important
	"to consider again not only the continuing weaknesses in financial management"
	and
	"the need for further improvement identified in the ECA's Reports",
	but
	"to examine the justification for the relative optimism about future improvements in financial management."
	The document submitted by the European Union does not have a number. The reference on it is "Official Journal OJ 2008/C 286/01 Volume 51 10 November 2008". That is the best I can do to identify it. It has 10 chapters, which deal with the subject in detail, and my hon. Friend the Economic Secretary and the hon. Member for South-West Hertfordshire (Mr. Gauke) referred to it. The general introduction includes the heading, "Chapter 1—the Statement of Assurance and supporting information", under which it clearly states:
	"The ECA have given an unqualified positive Statement of Assurance on the reliability of the EU accounts for the first time".
	It is the first time that the ECA has said that it has all the information required to state that the accounts are reliable. That is different from saying that it is happy with what the accounts contain—major errors persist in the budget.
	On the general budget, the European Scrutiny Committee states that the European Court of Justice also
	"gives a positive Statement of Assurance on the legality and regularity of the underlying transactions in the areas of revenue, 'administration and other expenditure' and 'economic and financial affairs', estimating that errors in these areas have a financial impact of less than 2 per cent.".
	That is a significant improvement—the glass is more than half full. We should acknowledge those improvements —our Government and our members of the Court of Auditors have called for them and for initiating a new regime. We should not always say that we cannot manage the budgetary process.
	The Committee goes on:
	"As for the audit of the European Development Funds the Court gives a clean opinion on the accounts but qualifies the Statement of Assurance on the legality and regularity of transactions in so far as they relate to payments."
	That is where our concern should lie.
	I shall refer to a letter from David Bostock, a UK member of the European Court of Auditors. He wrote to me as Chair of the ESC, and the letter was tabled at a Committee sitting. The second report in this bundle—which people may wish to read through, although it is very lengthy—is an important document on the fight against fraud. These are the two things we should wish to focus on in looking at any sets of accounts, regardless of whether they are for a private company, a Government Department, a voluntary organisation, a charity or the EU: are the accounts credible and can transactions be properly followed to find out whether payments are bogus or fraudulent?
	It is clear that action is being taken by the EU. As we recently noted, it unanimously denied Bulgaria the right to spend European funds. The country had an outstanding sum of €500 million of funds, but there were questions to do with high-level fraud and corruption in that country that were so great that the EU denied it the right to spend the money. This is an important matter, which the ESC has commented on for some time.

David Heathcoat-Amory: The hon. Gentleman is Chair of that Committee, which I serve on. He is putting the best possible gloss on this, but does he not agree with the following:
	"The budget headings subject to material error comprise 92.3 per cent. of total expenditure in 2007"?
	That amounts to €105.2 billion out of a total budget of €114 billion. There is, therefore, an extraordinary degree of weakness, and no public company could survive such an audit—certainly not for 14 years. Although the situation may be very slightly better than in the past, it is still a catastrophic situation involving a great deal of public money. Why cannot the public sector submit itself to the same degree of discipline and accountability that it imposes on the private sector through company law?

Michael Connarty: I echo that absolutely; we want to have that 100 per cent. We want to establish the credibility of accounts by having the ability to follow the accounts' income and expenditure to verify that the accounts are proper according to the rules and that the sums are spent in the right area. That is what we try to achieve when we have audit discussions and when we make negative comments—we tend to make negative comments—on reports and question the optimism of those who think this can be done easily. However, we wish it to be done.
	The following comments from the European Court of Auditors are interesting, so I shall read them into the record. They come from David Bostock, a UK member of the court, and it is important to recognise that he takes this matter very seriously. In his letter to me, which was tabled to the Committee, he not only discusses the positive aspects of the reports—he is positive on their regularity—but he also expresses concern about some issues.
	In paragraph 8 of the letter, David Bostock writes:
	"The Court gives a clean opinion on the accounts. They present fairly, in all material respects, the Communities' financial position as of 31 December 2007, and the results of their operations and cash flows for the year ended 2007. The Commission has been generally successful in implementing accruals accounting"—
	which is a new initiative that came in just some years ago.
	In paragraph 9, he says:
	"This is the first year for which the Court has delivered an unqualified opinion on the accounts. The European Commission's tendency to describe our qualified opinions on previous years' accounts as 'clean' may however obscure the novelty of this finding."
	It was always a matter of dispute between both our Committee and the Government and the Commission that it used the word "clean" to mean that there were no proven frauds—that there was dubiety but not proof. This new initiative is good, and we should welcome it.

Nicholas Winterton: I have a simple question. Why is it taking so long to have accounts cleared, because they would have to be cleared, certified and audited by professional accountants in this country if they were for a private company? Does the hon. Gentleman not accept that hundreds of millions of euros are still going walkabout every year? Is this an acceptable state of affairs?

Michael Connarty: I will leave the last part of the hon. Gentleman's assessment to the auditors and the fraud office, but all I can plead in my own defence is that I have been Chair of the ESC for only two years and things have improved vastly in that time. I do not claim any correlation between those two facts, however. One of the great difficulties in defending the EU is that people often look at it with a deliberate eye to seeing where they can transact dubious movements of money. There have been scandalous situations in some countries, where individuals have somehow trousered lots of money—£36 million for a single individual in one case—and Bulgaria has clearly not brought itself up to a satisfactory level of financial control and sufficiently reduced corruption to justify its spending the money to which I have referred.
	I must add that our Committee can put its hands up and say that we said Romania and Bulgaria should not have been allowed into the EU in 2007; nor should we have made them the offer that if they did not come up to scratch in 2007 and even if they did nothing, they would get in in 2008. As someone said to me privately, that meant that the politicians thought that they did not have to listen to Europe any more, and that if they just waited and did not change anything, their countries would get in. There have been more than 100 contract killings in Bulgaria since it joined the EU; that is a frightening statistic. The excuse we got when we met its Foreign Secretary was, "Well, they hire Russians, and they just go back to Russia after the killings, so we can't find them." Things are going on in the world that we would all like to change, but I shall now return to the budget.
	Mr. Bostock states in paragraph 11 of his letter:
	"In the other areas of expenditure—agriculture and natural resources; cohesion (the Structural Funds and Cohesion Fund); research, energy and transport; external aid, development and enlargement; and education and citizenship—however, the Court concludes that payments are affected by material levels of error".
	The letter continues with the observation
	"that supervisory...systems are only partially effective in ensuring that payments are properly made."
	Therefore, there are major identified faults.
	Paragraph 12 states:
	"As for 2007, the Structural and Cohesion Funds are the area of spending most affected by error...'The Court estimates that at least 11 per cent. of the total amount reimbursed should not have been reimbursed'."
	Given that that is known, we think that the next thing to do would be to find out who the people involved were, get the money back and prevent that from happening in the future.
	The letter continues:
	"Rural development accounts for a disproportionately large part of the overall error rate estimated in agriculture and natural resources."
	It is not agriculture and natural resources, but so-called rural development that is the main error area, therefore.
	Many other things are worth commenting on, but I shall draw the House's attention to a point that David Bostock drew to the attention of the Committee. He wrote:
	"The latter part of Chapter 1 (from 1.42 onwards) discusses the problems of ensuring that EU spending takes place properly. It leads to the conclusion (in 1.52 to 1.54)"—
	of the report before us today, which I find an incredible conclusion—
	"that there are political choices to be made about the control of spending and what risk of mis-spending is tolerable."
	No level of mis-spending is tolerable for any political reason. That should be the rule by which the anti-fraud office and the EU run.
	The letter states:
	"Chapter 2 reports some improvements in the Commission's supervisory and control systems, notably a greater realism than in previous years in the reports by Commission Directors General about the legality and regularity of the expenditure for which they are responsible."
	That would appear to imply that the directors general previously had greater laxity in what they considered to be realistically acceptable in expenditure.
	The letter continues that
	"the Court's conclusion is...that the Commission is not able to demonstrate that its actions to improve supervisory and control systems have been effective in mitigating the risk of error in large areas of the budget."
	It is an honest and clear appraisal, and it is in the documents contained with the report before us today. It would merit everyone studying it in detail.
	I wish to discuss what is said about the UK in the annual report, because we are never completely free of blame. For example, we regularly get reports that more cases have been brought against the UK over the illegal taking of fish in the EU than against most other countries —[Interruption.] Not in the past couple of years, but certainly in the past.
	Paragraph 17 of David Bostock's letter states:
	"There are references to the United Kingdom in chapters 5 (the CAP) and 6 (cohesion) of the annual report."
	Paragraph 18 states:
	"In chapter 5 criticisms are made of the establishment of the management of the CAP Single Payment Scheme. See in particular paragraphs 5.22, 5.26, 5.30 and Annex 5.1.2."
	Paragraph 19 states:
	"In annex 6.1 to chapter 6 the Court reports on its assessment of supervisory and control systems in 16 Structural funds programmes."
	He was talking about programmes involving the UK, and he continued:
	"One of these is jointly managed by the UK and Ireland."
	No country, not even this country, is free from questions about the way in which people carry out their transactions. That does not mean that they are fraudulent; it just means that the accounting systems and the way people are reading the spending rules for European Union funds call the transactions into question. It does not mean that when clarified, they will end up being seen as fraudulent or improper reimbursements.
	I wish to finish with an anecdote about one of my local farmers who was having problems with his sheep premium returns. When I went to help him out, he pulled out a bundle of things that were the equivalent of backs of fag packets—a number of bits of paper and backs of purchase invoices—where he had written out his various sheep numbers and so on. I could not make head nor tail of them. Of course, our people then turned up from the Ministry of Agriculture, Fisheries and Food and said that they could not make head nor tail of them. He could remember but could not prove what he had done, so he was having difficulty getting his payments. We must have systems, particularly in the A8 countries, that are disciplined, transparent and easy to understand, so that people are not accused of fraud when they are not fraudulent and so that we find fraud where it exists. In the meantime, I hope that the criticisms made in this debate will be passed on to the Government and to the European Union, and I hope that we will see further improvements in the future.

Jeremy Browne: My party takes an enlightened view of the European Union. I had an opportunity during the previous debate to touch on some of these themes, so I shall not rehearse them again at length. Liberal Democrats regard the EU as having a useful role to play in bringing nation states together to co-ordinate our response to the current economic crisis effectively. We emphatically think that the EU has a role to play in trying to mitigate the effects of climate change. Most people would accept that the EU and public opinion across Europe are further ahead in the debate than anywhere else in the world—certainly further ahead than in north America and Asia. The European Union, with Britain at the forefront, has a role to play in taking that agenda even further forward.
	The EU also has a key role to play in international diplomacy; we share the values of democracy, free speech and free markets, although free market economics have been challenged in the past few months. Probably the greatest foreign policy development and achievement in my adult lifetime has been the expansion of the European Union and the embracing by eastern European states that previously lived under oppression of freedom and those broad liberal values that we often take for granted in this country.
	I regret the paranoia that the Conservative party typically displays towards the European Union—the sense that everything that emerges from Europe must inherently be bad or a cause for suspicion. That paranoia persuaded the Conservative party to vote unnecessarily against the Government in the previous Division. However, I and my party recognise that just as politics in the United Kingdom is broken to some extent, politics and the financial and budgetary process in the European Union need to be dramatically overhauled. My party rightly recognises and welcomes some of the limited progress that has been made, but our bottom line is that that progress is not good enough. I echo the sentiments expressed in this debate by the Conservative Front-Bench spokesman about the terrible, wearying cycle of these debates; year after year we hear that the European Union has, yet again, not met the standards that we are entitled to expect it to meet on behalf of our constituents, who pay their taxes and contribute to the UK's financial contribution to the EU budget.

David Heathcoat-Amory: The hon. Gentleman is saying that he supports financial reform in the European Union. Why, therefore, did his party's representative on the Convention on the Future of Europe take no interest whatever in this aspect of reform when he had the opportunity to do so, and why did he fail to support my efforts and those of others who attempted to table amendments that would have cleaned up and reformed the European Union budget in a way that the hon. Gentleman now says he supports?

Jeremy Browne: I do not know the particular circumstances of that meeting. I do know that there is a huge range of views in the Conservative party on the European Union—indeed, the Conservative shadow Cabinet seems to be split on the Lisbon treaty, on joining the euro and on all kinds of other important questions relating to the European Union. I also know that my fellow Somerset MP, my hon. Friend the Member for Somerton and Frome (Mr. Heath), takes the view—

Madam Deputy Speaker: Order. I wonder whether the hon. Gentleman would bring his remarks back to the motion, and not be led astray.

Jeremy Browne: I regret being led astray by the right hon. Member for Wells (Mr. Heathcoat-Amory). I fear that nothing would ever be quite Eurosceptic enough for his taste, regardless of what I or his own Front-Bench team said.
	This House has a duty to safeguard and champion the interests of taxpayers in the United Kingdom, who contribute to the overall budget of the European Union. Much of the money that we are discussing is spent in the individual EU member states. I take on board the points made in the previous speech about the capacity of some of those member states to have auditing or overall political processes that meet the standards that we would expect in this country, and I agree that not all the money that is misspent necessarily involves fraud. Nevertheless, member states need notify the Commission only of irregularities of more than €10,000. I am told which the estimate of the total financial impact of irregularities has increased from €804 million to €1.048 billion a year. That figure is high enough to be a cause for concern, so I would like the Minister specifically to address that growth in the estimates of fraud and to tell us what representations the British Government are making to try to address the problem.
	In a debate that took place upstairs, I raised with the Minister of State, Department for Environment, Food and Rural Affairs, the right hon. Member for Liverpool, Wavertree (Jane Kennedy), who was then a Treasury Minister, the irregularities occurring in individual member states. I suggested that she might wish to identify, and thereby name and shame, the worst offenders so that we could make some progress—after all, that tactic is favoured by the Government in other areas of policy—by putting pressure on some of those member states to raise their game. She replied:
	"I am not sure that the most diplomatic thing would be to name the worst offenders, as the hon. Gentleman suggests."—[ Official Report, European Standing Committee, 28 January 2008; c. 9.]
	I fear that that is indicative of a less than muscular approach taken by Treasury Ministers. They could certainly express their discontent far more stridently within the EU than they currently appear to. Total UK budget contributions to the EU between 2007 and 2013 are to be £71 billion. Even spread over six years, that is a sizeable sum of public money by anyone's reckoning, and the onus is on the House and the Government to ensure that it is spent more efficiently and effectively.
	We are having an interesting three-way debate on the subject of Europe. The back-to-back nature of the hour and a half that we spent discussing the financial crisis and this debate has allowed the three party positions to emerge in a way that we do not often have the advantage of seeing so clearly. The Conservative party position is to favour an inert European Union. There is a sense of fear and loathing whenever the subject of Europe comes up. To give the Conservatives credit, however, they are alert to the financial irregularities and the need to make improvements. The Labour party position is to be positive and constructive with regard to the EU, but I regret to say that, on the downside, they are insufficiently alert—indeed, somewhat complacent—when it comes to the financial irregularities in the EU.
	Finally, there is the Liberal Democrat position, which is to be positive and constructive towards the EU and see that it has a role to play, as I said earlier, but also to be alert to the need to address financial irregularities. Only one party has both sides of that equation right, and that is my party, the Liberal Democrats.

Peter Bone: It is a great pleasure to follow the hon. Member for Taunton (Mr. Browne), in whose words I found nothing whatever to agree with. His conclusion that his party is constructive towards Europe and somewhat concerned about the problem that we are discussing seems wholly unrealistic. We need only look at the two Liberal Members who are in their places—they have two very different opinions on Europe.  [Interruption.] Well, on the Lisbon treaty.
	We are spending billions of pounds a year on the EU. I think that today we have agreed to contribute another three quarters of a billion pounds for this year, although that has not quite been made clear in the debate. What worries me is that if I, the Government or anybody else were investing huge sums of money in any other organisation, we would expect it to have proper, audited accounts. At least, that is what I thought until this week, when I saw the Government spending billions of pounds on banks, obviously without having exercised any due diligence.
	It cannot be right that the EU has not had unqualified accounts for 14 years. It would have been incredible to somebody voting in the referendum on whether to take Britain into the Common Market to think that this country would give billions of pounds to that organisation without being sure how it was being spent. We are debating not whether that money is being spent wisely and on good things, but whether it is being spent in line with the rules of this ridiculous European Union club.
	The Government's argument is always that they are at the heart of Europe, and that by co-operating with Europe they get their own way. Indeed, I understand that Superman led the EU in its financial recovery, which we discussed in the previous debate. If they really are at the heart of Europe, and if they really get their message across, that must mean that they support the fact that the auditors do not give clean reports. I think that that is the case, because it is politically useful to other countries if the fine rules of the European Union club are not applied. Whether we say that it is fraud or irregular payment, it is very convenient to overpay people in one's own country. I am sure that that is how some of our EU friends look at it.
	We in this country are much better at and much fairer in interpreting EU rules to the letter. Many of my constituents say that we are mad to do that. They ask why we do not do what our continental colleagues do and use flexibility when deciding how much money should be given out. If the Government were serious about the matter, after 12 years in power they would have sorted it out, but they are not serious about it. They could have solved the problem at a stroke by going to the European Council and saying, "We, as a country, are not going to pay a single penny more in contributions until we get the accounts sorted out." I think that this debate is far more important to the British people than the inauguration of the US President.

Jeremy Browne: The hon. Gentleman is closer to these things than I am: is it the Conservative party's position that all payments to the EU should be suspended until the accounts are signed off as being fully proper and correct?

Peter Bone: I am grateful for that helpful intervention, but unfortunately I do not speak for the shadow Cabinet, which has a set and agreed policy on Europe and is united behind it. I am making a simple, practical suggestion to the Minister, who is highly regarded, that if he were serious about it he could solve the problem overnight.
	Debates such as this may be put on at this hour so as to avoid publicity but, to the British people, spending billions of pounds on an organisation that cannot even get its accounts right cannot be acceptable.

Kelvin Hopkins: I apologise for not being able to be here for the first part of this debate, Madam Deputy Speaker, although I was here for the whole of the first debate.
	I have had the misfortune to debate this nonsense for the past 12 years, often in Standing Committees and sometimes in the Chamber. I sound almost like a broken gramophone record, but I wish to repeat some sensible thoughts in the hope that they will have some impact on my hon. Friend the Minister.
	There is a simple way to eliminate the fraud that is taking place, which is to change the whole European Union budget system into a new mode of operation. I add that although both Eurosceptics and Euro-enthusiasts keep talking about "Europe", the organisation is not Europe; it is the European Union. Europe is a continent which includes a lot of countries that are not in the EU, and the EU is a political construct imposed upon some of those countries. I therefore speak of the EU, not Europe. I love Europe and go there on my holidays every year, and various of its countries are absolutely wonderful.
	To overcome the problem, we must completely reform the budget. It currently redistributes revenue and income across the EU in a way that is sometimes rather arbitrary. Some countries pay more than they should and some receive more than they should. A way to overcome that would be to have a budget allocated by a simple fiscal transfer system that gave to those who were poor and took from those who were rich, so that everything was proportionate to the prosperity of the member state. That is if one wants to have such a budget at all—there may be a case for not having one, but that is another debate. If we are to have one, the way to make it fair and acceptable to everybody is to ensure that everybody receives according to their needs and gives according to their ability. There would then also be a transfer of power, from the EU bureaucrats who decide where the money will be allocated to the member states. Devolving more power back to member states would be sensible and agreeable. If fraud then occurred within those member states, that would be their problem. In Britain, we would no doubt spend the money sensibly and avoid the problem of having lots of apparently generous donations from the EU to local projects with the EU logo all over them when we are massive net contributors and only part of our money is being handed back. Britain suffers more from that than most countries. As a wealthy country we would be a net contributor under the system that I am proposing, but we would not be a net contributor with France, Denmark and even Ireland being net recipients. Like us, they would be net contributors.
	The cumulative figure for net contributions by Britain to the EU since we joined is £125 billion. The sums will rise substantially by 2013 because of the poor deal negotiated by Tony Blair during the British presidency. Of course, with the devaluation and depreciation of the currency, we pay substantially more each year. If contributions were a proportion of our national income rather than effectively geared to the euro, we would pay less.
	A system whereby there was a budget for pooled contributions from member states, where poor countries received and rich ones gave an amount proportionate to their living standards, would be a fair system that would eliminate the problem of fraud. We would not have the massive confusion and complexity of these budget reports. Decisions about where money was spent would not be made by bureaucrats in Brussels, but by democratically elected Governments in member states.

Ian Pearson: With the leave of the House, I should like to respond to the debate. First, I want to refer to the comments made by my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty), who acts as Chairman of the European Scrutiny Committee. He said that he believed that the glass was more than half full and rightly pointed out that for the first time the Court has this year given a positive opinion on the reliability of the EU's accounts, with no reservations. He also suggested a number of other areas where improvements had been made. I agree with him that there have been some positive developments, but I like a full pint. We need to be relentlessly dissatisfied with the level of progress. That is why the Government will continue to press through the European Court of Auditors and other forums, in particular the February ECOFIN discussions in Britain, the need for the Commission and member states to continue to do better in the future.
	I was rather surprised to hear one hon. Member suggest that we should refuse, in effect, to make future contributions to the European Union until all this was sorted out. I do not think that that is a realistic attitude. The UK is required to make its contributions under obligations imposed by the treaties, as the European Communities Act 1972, and section 2 in particular, gives effect in the UK to Community law.
	We must recognise, too, the clear and demonstrable benefits of the UK's membership of the EU. EU membership has delivered and continues to deliver significant benefits to the UK and the whole EU. The EU is key to the success of business in the UK. Europe accounts for nearly 60 per cent. of our trade, 700,000 British companies have trading ties to Europe and at least 3.5 million jobs depend on Europe.
	It is important that we retain membership of the EU. I am pleased to see that the Conservative party has decided to appoint a shadow Secretary of State for Business, Enterprise and Regulatory Reform who is a wholesale enthusiast for Europe. I look forward to debating the issue of Europe with him in due course in my other role as a Minister in the Department for Business, Enterprise and Regulatory Reform.
	A number of Members raised the issue of the UK's abatement. I want to make it clear that the 2005 budget agreement preserved the British rebate in full on agricultural spending and all spending in the EU15. The UK abatement will be disapplied by a maximum of €10.5 billion on spending for economic development in the new member states. That will not change, but we believe that it is right that we should pay our share of the costs of EU enlargement, which benefits the UK economy. The year 2010 will be the first full year of disapplication of some spending in new member states from the calculation of the abatement, resulting in the higher net contribution that has been referred to, which was published in the pre-Budget report. It is important that the UK should pay its share of the enlargement costs.

David Gauke: I am grateful to the Minister for confirming that the cost of the renegotiation of the rebate and the surrender of an element of the rebate is valued at €10.5 billion. When that matter was debated in the House, during our discussions of the Bill that formalised that partial surrender, the figure of £7.4 billion was used. Will the Minister update us as to what that €10.5 billion now means in sterling?

Ian Pearson: My understanding is that the €10.5 billion figure was derived from and based on 2004 prices, and that will remain the case. The hon. Gentleman will understand that exchange rates go up and down and he will be able to do the calculations himself. I want to reinforce the point that I was making earlier, however. There is a complete misconception that the recent deterioration in the euro-sterling exchange rate in the euro's favour will mean that the UK will have to pay significantly more in contributions. That is emphatically not the case, for the reasons that I outlined earlier.
	I want to refer briefly to the comments made by the hon. Member for Taunton (Mr. Browne). I agree with him that it is disappointing that there has been an increase in the level of irregularities. The figures that he quotes mostly relate to the fact that there is a larger EU following the accession of Bulgaria and Romania. Overall, the levels of fraud that were found by the European Court of Auditors are, as I said earlier, around 0.2 per cent., which is a similar level to that in 2006.
	We do not name and shame, but we do push for political recognition of member state responsibility as well as Commission responsibility. We also lead the way by taking the initiative and publishing our own statement on the use of EU funds in the United Kingdom. We believe that we have been instrumental in encouraging others to do the same.
	A number of hon. Members specifically mentioned the UK's position. The hon. Member for South-West Hertfordshire (Mr. Gauke) referred to the UK with particular regard to the subject of the European regional development fund in Merseyside. The Government office for the north-west sent an interim response to the European Court of Auditors in July 2007. It then sent a full response in July 2008 and a further response in September 2008. A reply from the Commission at the end of November 2008 reduced the ineligible amount from £21 million to £2.2 million. Following advice from the Department for Communities and Local Government external legal counsel, a further response rebutting the outstanding issues was sent on 9 January this year and, if accepted, would reduce the ineligible amount to about £1 million, which would be reclaimed from project applicants. I think that that gives an idea of the complexity of some of the existing rules and of how they are interpreted—another point raised by the hon. Gentleman. It also shows our rigorous approach to the recommendations and views of the European Court of Auditors, and to administering ERDF funds.
	The hon. Member for South-West Hertfordshire also asked some questions about the Commission's integrated control framework. He will be aware that, during our EU presidency, the UK took significant action to create the environment that would ensure that the plan could be success. Measures have already been taken to ensure better propriety and more effective spending, but the programme needs to continue and we shall support that.
	Several hon. Members asked about international development. I can tell them that the Commission is working very closely with OLAF and taking on board recommendations where fraud is found. We place particular importance on that and, where possible, we have been quick to work through the various European Council committees. We have zero tolerance in respect of fraud, and work closely with the Commission's audit department.
	I want to reassure the House that we are not weary with this matter. We are certainly not satisfied with the progress that has been made, but there has been some. We believe that a clear need for action remains, and that greater efforts are required from all concerned. The Commission must implement its action plan in full and member states must take more responsibility, especially in the areas of agriculture and structural funds, and budget authority would benefit from making greater use of the ECA's performance reports. We will continue to lead on these matters, and I look forward to the upcoming publication of the second consolidated statement on the use of EU funds in the UK.

Question put.
	 The House divided: Ayes 287, Noes 213.

Question accordingly agreed to.
	 Resolved ,
	That this House takes note of an unnumbered Explanatory Memorandum from HM Treasury dated 4 December 2008, European Court of Auditors 2007 Annual Report, an unnumbered Explanatory Memorandum from the Department for International Development dated 8 January 2009, European Court of Auditors Annual Report on the activities funded by the seventh, eighth and ninth European Development Funds, European Union Documents No. 12156/08 and Addenda 1 and 2: Protection of the financial interests of the Communities: Fight against fraud, No. 12471/08 and Addendum 1: Annual report to the discharge authority on internal audits carried out in 2007, and No. 12472/08: Report on the progress at 31 March 2008 on the modernisation of the accounting system, an unnumbered Explanatory Memorandum from HM Treasury dated 16 October 2008, European Anti-Fraud Office: eighth activity report for the period 1 January to 31 December 2007, and European Union Documents No. 14480/08 and Addendum 1: Commission Report to the Council on the follow-up to 2006 Discharge Decisions (Summary)—Council recommendations, and No. 14481/08 and Addendum 1: Commission Report to the European Parliament on the follow-up to 2006 Discharge Decisions (Summary)—European Parliament Resolutions; and supports the Government's promotion of measures to improve the level of assurance given on the Community budget.

EU-Russia Relations

Caroline Flint: I beg to move,

That this House takes note of European Union Documents No. 15299/08, Commission Communication Review of EU-Russia Relations and No. 15300/08, Commission Staff Working Document accompanying the Commission Communication Review of EU-Russia Relations; and supports the Government's policy on the future of the relationship in view of recent developments.

At the start of my contribution, I congratulate the hon. Member for Rayleigh (Mr. Francois) on his promotion. I have heard of carbon offsetting, but Clarke offsetting is new to me.
	We are here this evening to discuss the relationship with Russia, and I shall deal with the eastern partnership as well. The year 2008 was an eventful and often a difficult one for EU-Russia relations. I shall begin the debate by reflecting on the past year, putting it in its wider context, and looking to the future.
	The start of the year saw Russian action against the British Council in St. Petersburg and Ekaterinburg, and an EU statement was forthcoming in support of the United Kingdom. In June, the EU launched negotiations for a new partnership and co-operation agreement with Russia, only to suspend them just a few months later following Russia's disproportionate actions against Georgia. There followed a comprehensive review of EU-Russia relations—the EU-Russia "audit"—that gave the EU a clear account of the range and depth of its relationship with Russia. In November, the EU decided on the basis of that review to resume the PCA negotiations. The House has already discussed the resumption of the PCA negotiations in detail. However, it is important to reflect on why we took the decision to resume.
	We would agree across the House that it is in no one's interests for Russia to be isolated. The EU and Russia face many common challenges, and share many common interests. We need to work together in tackling climate change; ensuring reliable energy supplies to the European market, an issue known to us now more than ever; enhancing trade and investment; promoting peace in the middle east; and combating the threat of a nuclear Iran. The best way to make progress on these issues is for Europe to talk to Russia honestly and openly. Structured, regular dialogue will help develop greater understanding and a more predictable, rules-based relationship. That is good for Russian and European business and investors, for our energy companies and consumers, and—importantly—for Russian and European civil society.
	This is why we took the decision to resume negotiations. The mandate, agreed by all member states, ranges across the spectrum of EU-Russia relations, including justice and home affairs, human rights, science and education, as well as trade and investment issues. We have been clear that this is in no way a return to business as usual. EU Ministers agreed that the pace and tone of the negotiations would be informed both by the review itself and by Russia's fulfilment of its obligations under the ceasefire agreements.

David Winnick: I am sure that everyone in the House would like us to be in friendship with Russia; that was the hope arising from the end of communism. However, is my right hon. Friend aware of a growing concern that human rights activists have been persecuted in the country? Yesterday a human rights lawyer, 34 years of age, was murdered in Moscow with a trainee journalist. That is in addition to the murder of a prominent human rights journalist two years ago. Those are disturbing matters, and one inevitably wonders how far the Kremlin was involved.

Caroline Flint: I agree that those are disturbing matters. In a short while, I shall comment on the latest development, to which my hon. Friend has referred.

Daniel Kawczynski: Last summer, when Russian forces invaded Georgia, 11 European Heads of State immediately visited Tbilisi to show solidarity. Regrettably, our Prime Minister did not have the time to visit. Will the Minister assure me that either she or the Prime Minister has plans to visit Georgia in the near future to show solidarity and show in the strongest possible way that we will not allow the Russians to intimidate that important country?

Caroline Flint: Nobody could doubt the UK Government's concern about what happened in the summer. As Minister for Europe, I met the country's Foreign Minister, who has changed jobs; in fact, I met her in her new role just last week. We will continue to support action to make sure that the agreement struck last year between Sarkozy and Medvedev is fulfilled.

William Cash: Will the Minister acknowledge that a number of people have said that the invasion of Georgia's territorial integrity is not as clear cut as some have indicated? Indeed, as events unfolded, a great deal of uncertainty emerged. Not only that, but a BBC programme has made serious allegations about war crimes by Georgia in the affected areas. Will the Minister comment on that, and be a little less certain about what really went on?

Caroline Flint: I think I am right in saying that it has been agreed within the European Union that allegations of atrocities and war crimes should be looked at, whoever might be found responsible for them. That is absolutely the right way forward. We need to get to the bottom of the issues because many people are still displaced by the current situation and violence is still occurring in different forms. I shall say a little more about that later.

John Bercow: I listened with interest to what the Minister just said about the need to ensure that abuses of human rights, including atrocities—by whomsoever they are perpetrated—are investigated. It is important to have a sense of the end point. Does the right hon. Lady envisage that if there is a prima facie case on the basis of the investigation, there could be referrals to the Hague?

Caroline Flint: I would not like to speculate on that at this time; it is important that the independent inquiry should look into the allegations. There are protocols and criteria that would underpin any further action, and we need to look into these matters with great seriousness.
	I want to comment on the gas crisis. So far, 2009 has been no less eventful than 2008. We have seen a deeply worrying gas dispute between Russia and Ukraine, and it has had a serious impact on many EU member states. Although we welcome assurances from Moscow and Kiev that the gas is now starting to flow—I understand that some countries are now benefiting from that—the delay in reaching agreement has been absolutely unacceptable and has done great damage to the reputations of Russia and Ukraine. We urge them to take every step they can to speed up delivery to the EU.
	The presidency and the Commission have played an important role in resolving the dispute, but hon. Members will want to know what the EU is doing to ensure that Europe does not face future cuts to its supply. It is vital that the EU should do everything possible to avoid a repeat of this crisis in future by increasing the transparency of the arrangements for supply and transit, diversifying gas suppliers and routes, increasing our use of alternative energy sources, and improving energy efficiency.

Mike Gapes: Is my right hon. Friend aware of today's remarks by Mr. Barroso, President of the Commission? He described the negotiations as the most difficult that he has ever had to deal with and said that neither side keeps to agreements. He also said:
	"Gas coming from Russia is not secure. Gas coming through Ukraine is not secure. This is an objective fact."

Caroline Flint: The situation has been very worrying. I attended the Czech presidency informally in Prague just a fortnight ago at the height of the situation. The President and the Czech Energy Minister were trying to resolve and negotiate a deal in Brussels. We had a video conference with both of them so that we Foreign Ministers could keep in touch with what was happening. The important matter is to get the gas flowing, but the various arguments on both sides about who is responsible need to be sorted out. What has happened is completely unacceptable, and we must not face the same problems this time next year. That is why I look forward to the spring European Council and the agreement to an ambitious action plan to implement the strategic energy review so that we can think about the medium and long term while hoping that our Russian and Ukrainian colleagues will recognise that they have commercial and contractual responsibilities to ensure supply to their neighbours in Europe.

Charles Hendry: Will the Minister add improving gas storage to her list? The only reason why the crisis has not been worse is that, at 80 per cent.-plus of capacity, many of our European counterparts have much more significant gas storage than we have. They have been able to withstand the reductions in Russian gas supplies. In this country, we have only 12 days of gas storage; we are critically short of it. Will the Minister talk to her colleagues at the Department of Energy and Climate Change to see what can be done to improve our situation and make sure that we have a buffer against such problems in future?

Caroline Flint: My understanding is that the UK Department concerned is looking at some of those gas storage issues. However, I emphasise that how we source our gas—only about 2 per cent. comes via Russia, I think—means that our supply is much more diverse, so the necessity for a certain number of days' storage is not necessarily as applicable to us as it is to some of the other countries concerned.It is also important to be aware that while several of our European neighbours did have storage supplies, in some cases they were having to cut off supplies to industry to ensure that supplies were available for family and domestic use. That was the right decision to take, but there were consequences for the businesses that had to deal with their supplies being reduced. Whatever way we look at this, it has not been a happy situation. I know from my attendance at the informal session in Prague that many of my European colleagues were very angry and frustrated by what was happening.
	I have been deeply concerned by recent attacks on Georgian police carrying out their lawful duties in Georgia. As the EU has made clear, such attacks seriously breach the Sarkozy-Medvedev agreements and should be thoroughly investigated so that those responsible can be brought to justice. We hold Russia responsible for security in the separatist regions and for ensuring that instability does not spread from those regions into the rest of Georgia.
	My hon. Friend the Member for Walsall, North (Mr. Winnick) referred to the human rights lawyer, Stanislav Markelov, who has been shot dead along with the journalist Anastasia Baburova. Our thoughts are with their families and colleagues. The Government raised with the Russian Government concerns about the safety of human rights defenders and journalists in Russia last Friday during bilateral human rights consultations. We join the EU presidency in urging the Russian authorities to investigate this murder promptly and impartially and to bring all perpetrators to justice.

David Drew: Does my right hon. Friend accept that the issue of human rights does not relate only to what happens in Russia? I have a constituent who happened to be one of those who received the remnants of the assets of the Yukos bank in this country. Because of that, he has been continually chased by the Russian authorities. He is a totally innocent party in this, but it has stopped him travelling to eastern Europe and he lives in some fear that action will be taken against him. This also concerns Russian attitudes towards British citizens and those citizens' efforts as part of their lawful pursuit of work. Will my right hon. Friend do what she can to tell the Russian authorities that this is not a good way to develop relationships with this country?

Caroline Flint: I assure my hon. Friend that we raise at every opportunity cases where we feel that British citizens' rights, in particular, have been infringed. Part of the discussion on the partnership co-operation agreement is about trade and investment, and it does not help Russia if business people find that it is too difficult a place to do business with. It is obviously in British business interests, but also in Russian interests, to have a commercial environment in which business can be open and transparent and people can feel assured that they will be treated properly.

Bob Spink: rose—

Caroline Flint: I would like to make some progress, because this is a very short debate and I am conscious that other Members will want to contribute.

Andrew MacKinlay: If you listened to that lot you would think all the Russians have horns coming out of their heads.

Madam Deputy Speaker: Order. If the hon. Gentleman wishes to make a contribution to the debate, he knows the correct way of doing so.

Caroline Flint: rose—

Philip Hollobone: rose—

Bob Spink: Will the Minister give way?

Caroline Flint: No, I am going to make some progress, because I am looking forward to the contribution by my hon. Friend the Member for Thurrock (Andrew Mackinlay), should he catch Madam Deputy Speaker's eye.
	May 2009 will see the launch of the eastern partnership, a priority for the Czech EU presidency. The Europe of today is very different from the Europe of 20 years ago. Ten countries that were once part of the Warsaw pact are now EU member states, and the countries in what Russia calls its "near neighbourhood" are independent: they are free to make choices about their destiny and to seek alliances with other countries that will further their security and prosperity. All the EU's eastern neighbours, except Belarus, have partnership and co-operation agreements with the EU and are committed to political and economic reform in return for EU assistance. Some aspire to join the EU and want closer ties. This is a natural development, not a threat. There is no such thing as a special post-Soviet space where different rules apply. Instead we have a common, shared neighbourhood, and we rightly seek to form partnerships with our neighbours to promote prosperity, security and stability in the region.
	The proposed eastern partnership will offer partners the opportunity to deepen their economic integration with the EU and to build co-operation with the EU and each other on a range of issues, including, importantly, energy security, good governance and trade. The eastern partnership should be seen as complementary to EU-Russia relations. The Black sea synergy initiative, in which Russia already participates, encourages co-operation across the wider region, and there may well be opportunities for Russia or any other third country to participate in eastern partnership projects. We want the eastern partnership to be ambitious and to lead to greater integration with EU standards and processes for partners, but not as an alternative to membership. The eastern partnership will build on the declared will of our neighbours to align themselves more closely with the EU. We will work closely with the presidency, the Commission and member states to develop this initiative.
	Co-operation and dialogue are key to building stability and prosperity in the region.

Bob Spink: Will the Minister give way, as she has been so generous?

Caroline Flint: I will give way for the very last time.

Bob Spink: I am grateful to the Minister. Does she accept that EU-Russia relations are to a significant degree influenced by the service provision policy of the BBC World Service? Will she encourage the Government to encourage the BBC to return to previous levels of that service so that the Russian people can be informed, even if that upsets some of the Russian political class?

Caroline Flint: I have met representatives of the BBC World Service since coming into this post. The fact is that the number of Russian listeners to radio is declining while the number using the internet is increasing. For very good reasons, the World Service, which is an expensive service, is trying to keep up with modern times and with what Russians want themselves. I am sure that the hon. Gentleman could avail himself of a briefing from the BBC World Service. However, we have to get into the 21st century and understand that the ways in which Russians are seeking to hear alternative voices and opinions are changing. The medium is changing, and I am satisfied that the World Service is keeping up with that.
	The mandate for negotiating a new partnership and co-operation agreement is clear that the EU expects Russia to fulfil all its international commitments. The current gas dispute between Russia and Ukraine raises serious questions about energy security, and Russian actions in Georgia last summer cast a shadow over Russian commitment to European security and to the international community as a whole. In both instances, I am pleased that the EU has been called upon to act rapidly to mediate between the parties. Challenging as these events have been, and continue to be, the EU has proven itself up to the task. The eastern partnership presents an important opportunity to support countries that share our values and want greater integration with Europe. It is in our interests to build greater co-operation between eastern neighbours and the EU. The year 2009 looks to be a significant one for EU-Russia relations and EU relations with its eastern neighbours. I look forward to hearing Members' views on this important topic.

Mark Francois: I rise to respond to the Government's motion on behalf of Her Majesty's Opposition. I begin by thanking the Minister for her kind remarks about my recent promotion. I do not see my task as an offsetting one, as she put it, but if, by the same token, her role is to offset the Business Secretary, Lord Mandelson, I think that she probably has a more challenging task than I do.
	The motion asks us, first, to take note of the European Commission documents before the House relating to EU-Russia relations, but also to support
	"the Government's policy on the future of the relationship in view of recent developments."
	I shall return to that key part of the motion later in my remarks.
	About half the bundle of documents that we are considering, which we should remember have been forwarded to us for debate by the European Scrutiny Committee—I see its Chairman rightly sitting in his place—relate to the proposed eastern partnership. Conservative Members broadly support the principle of that partnership, but it should be subject to greater scrutiny of the considerable financial implications that it would involve. Indeed, that point was highlighted by the European Scrutiny Committee. The other half of the documents broadly relate to UK and EU relations with Russia, not least as they have been affected by the events of August last year. It is on those elements that I would like principally to concentrate my remarks.
	The background is obviously the Russian invasion of Georgia in August 2008, which was, in many ways, an unpleasant throwback to some of the more regrettable episodes in European history. It violated not only international law, but, importantly, Russia's previously expressed acceptance of Georgian territorial integrity as expressed in numerous United Nations resolutions, most recently including resolution 1808, which was passed only last April with Russian support. Whatever one may think of Georgia's actions on 7 August, Russia used grossly disproportionate force in response, and by subsequently recognising its supported regimes in Abkhazia and South Ossetia, Russia is attempting to redraw the map of Europe by force to some degree.

Andrew MacKinlay: Nonsense is peddled by both the Front-Bench teams on arbitrary alterations of the boundaries of Europe. It was the EU that consciously abrogated the Helsinki final accords in relation to Kosovo. It was stated unequivocally that there would be no arbitrary alterations to the boundaries of Europe. Once that line is crossed, there are consequences. It was a green light for Russia to deal with these three territories in the way that it did. It was predictable. Everyone understood that except for Tory and Labour Front Benchers in this place.

Mark Francois: By parliamentary convention, I am required to thank the hon. Gentleman for his intervention, so I shall do that, not least as he is a fellow Essex colleague, but I disagree with him. I have to point out to him that the territorial integrity of Georgia was supported by a whole range of UN resolutions, which the Russians themselves had signed up to. Perhaps he seeks to overlook that material fact.
	The EU presidency, which was headed at the time of this crisis by President Sarkozy of France, showed admirable resolve in obtaining Russian agreement to a six-point ceasefire plan. One of the key conditions of this agreement was:
	"Russian armed forces to withdraw to the line they occupied before the start of military actions",
	which were their positions before 7 August. Given Russia's use of force, and its failure to abide by the EU ceasefire agreement, my party strongly supported the EU Council's subsequent decision on 1 September, referred to on page 94 of the bundle, to postpone EU negotiations with Russia on a new EU partnership and co-operation agreement until
	"troops have withdrawn to the positions held prior to 7 August."
	In that we also agreed with the Prime Minister, who, in his subsequent written statement of 10 September said:
	"We strongly support this decision",
	and
	"it cannot be 'business as usual'."—[ Official Report, 10 September 2008; Vol. 479, c. 128WS.]
	In addition, alongside the suspension of the negotiations, the EU undertook to conduct a review of all EU relations with Russia, the conclusions of which form a substantive part of the documents that we are talking about.
	However, despite all the Government's seemingly robust rhetoric condemning the Russian invasion, Russia was still in breach of the ceasefire terms when, only three months later, the Government supported the resumption of talks. The threat to keep the negotiations postponed had been clear, but when it came to it, it was not carried out. Let us be clear: Russia has not abided fully by the terms of the ceasefire. Specifically, it has not withdrawn its armed forces to the line they occupied before the start of military actions. Russian combat forces remain in South Ossetia and Abkhazia, significantly including places such as Akhalgori in South Ossetia and the Kodori gorge in Abkhazia—areas that were until recently ethnically Georgian and administered by Georgia before the Russian invasion, but which are no longer so, having been ethnically cleansed of their Georgian populations.
	Regardless of the planned contents of the talks, the very resumption of EU partnership negotiations is likely to have been seen in Moscow as something of a symbolic victory. It represents, to the Russians at least, a return to business as usual. Indeed, although the Foreign Secretary described the resumed talks as "hard-headed negotiation", it is worth pointing out that the Russian Government do not appear to share exactly that view. In fact, the Russian Foreign Minister, Sergey Lavrov stated only last week:
	"I think we have never worked so closely with the European Union in such issues that are indeed significant for both parties."
	 The Economist effectively acknowledged that Russian satisfaction last November, in an article entitled "Europe quietly caves in to agree to new partnership talks with Russia." I see that the hon. Member for Thurrock (Andrew Mackinlay) is chuckling away.

Andrew MacKinlay: Yes, because it is all nonsense. Will the hon. Gentleman give way?

Mark Francois: Wait one second. I will let the hon. Gentleman back in, but when I am ready.
	That is a pretty accurate description of what took place and it is not encouraging for the future. The Foreign Secretary, in his statement of 10 November, setting out his reasons for resuming talks, saw it differently, of course. He said:
	"Negotiations on the agreement are a pragmatic way of pursuing our interests across a range of important issues, like energy, climate change and trade."
	That approach was reflected by the Europe Minister in her letter of 26 November to the European Scrutiny Committee, which is referred to on page 35 of our bundle. She argued that it was not a return to business as usual. However, as the European Scrutiny Committee pointed out in its subsequent reply—and I see the Chairman of that Committee smiling slightly as I think he knows what I am going to say—the Minister failed
	"to mention the major associated gathering of EU and Russian business leaders, along with French and Russian Ministers, as well as EU commissioners, which had all the appearances of 'business as usual'."
	That is when they all met at Nice.

David Wilshire: Will my hon. Friend give way?

Mark Francois: I must give way to the hon. Member for Thurrock first, and then I shall give way to my hon. Friend.

Andrew MacKinlay: The reason I cannot contain myself is the delusion that we in London think that if we poke our tongue out at the Russians, it somehow frightens them. It does not. It is a big country, a big player and a skilled negotiator, which we are not always. We have to deal with political realities, and all this huffing and puffing by the House of Commons about Russia is not leading us anywhere. We have to deal with the world as it is, rather than how we would like it to be. I was in Prague and Warsaw last week, and the conservative, right-wing Governments there—I do not say that disparagingly—have a much more pragmatic and realistic view of their relations with their neighbour. It is a question of doing business with the Russians, and we are wasting our time with this nonsense.

Mark Francois: I am not proposing that we poke our tongue out at Russia, but I am proposing that if the EU postpones talks with Russia on the basis that it has not adhered to a ceasefire agreement, and if Russia does not adhere to that agreement, we should not give them the satisfaction of resuming the talks. I do not think that that is poking out one's tongue; it is being consistent. That is my argument.

Edward Davey: rose—

David Wilshire: rose—

Mark Francois: I said that I would give way to my hon. Friend, which I am just about to do. Then I shall make some progress, and then I shall generously consider the request to intervene by the Liberal spokesman.

David Wilshire: For reasons I will explain to the House if I catch your eye, Madam Deputy Speaker, I had two meetings with the Russian Foreign Minister recently, the second of which took place on Sunday. I can only say that the Russians may well see talks starting again as something of a victory, but the difference between those two meetings—one before the talks started again and one after—was startling. The issues we are concerned about and want Russia to address are more likely to be discussed than they were previously.

Mark Francois: I thank my hon. Friend for his point. One of the issues that is being discussed in those talks is energy security, which relates to gas. I shall come to that point immediately if he will allow me.

Robert Key: Will my hon. Friend give way?

Mark Francois: In just one second, if I may. I would like to make a little progress, and then I will.

Edward Davey: I'll be next.

Mark Francois: Forgive me, but I will decide who is next.
	Despite what might be described as a gesture by the European Union to restart the talks—I hope that my hon. Friend the Member for Spelthorne (Mr. Wilshire) would accept that description—Russia suspended gas supplies to Ukraine on 1 January as a result of a dispute, knowing full well when it did so that that would have significant knock-on effects for other countries in Europe, including those in the EU. In fact, once the shortages began to bite, gas supplies to a number of European countries were cut, in some cases, unfortunately, by as much as 100 per cent., with the Balkans and Austria being particularly hard hit. That led to widespread reports of factory shutdowns and, unfortunately, even deaths from cold.

Robert Key: I am amazed that we have got this far into the debate without any mention of the North Atlantic Treaty Organisation. Does my hon. Friend agree that we cannot begin to resolve the question of the relationship between the EU and Russia until we have resolved the issue of the EU and NATO, and NATO and Russia?

Mark Francois: On the day of the inauguration—in some respects, the historic inauguration—of a new President of the United States, my hon. Friend's intervention gives me the opportunity to stress the great importance that we Conservative Members place on the transatlantic relationship. In that context, it is of course important that we discuss the issue with our NATO allies. I am glad that he has given me a chance to reiterate that point on such an auspicious day.

Edward Davey: Will the hon. Gentleman give way?

Mark Francois: In a moment.
	To return to the gas dispute, the Government in Slovakia were forced to declare a state of emergency when key hospitals were left without power. Bulgaria has experienced massive power shortages leading to, among other things, the closure of a number of key strategic factories. The Associated Press reports that at least 11 people have died, including 10 in Poland, as a result of gas shortages caused by the dispute. That led the German Chancellor, Mrs. Merkel, to warn, in an article in  The Wall Street Journal on 16 January, that if such behaviour continued
	"confidence in Russia could be lost in the long term".
	Tellingly, also on 16 January, the European Commission spokesperson, Johannes Laitenberger, said:
	"It's a situation the seriousness"
	of which
	"goes beyond the specific issue of gas... As of next week, if the gas does not flow again, we will have to look point by point at our relations with Russia and with Ukraine and assess in each case whether we can do business as usual."
	Today, gas supplies have still not been restored to many of the affected areas of Europe. Under an agreement between Russia and Ukraine that was signed only yesterday, to which the Minister referred, Russia has apparently begun to pump gas back into the network, although it is likely to take several days for supplies to return to normal.
	As I intimated earlier, ironically, energy is one of the issues that is supposed to be discussed in the new partnership negotiations. So far, the Government's policy of supporting the restart of negotiations with Russia has been met, in part, with a switch-off of gas to a number of our partners in the EU. That could by no means be described as a triumph for the Government's policy.

Edward Davey: I should be interested to know for how long the hon. Gentleman would stick his tongue out at the Russians, to use the term of the hon. Member for Thurrock (Andrew Mackinlay). The hon. Gentleman criticises the Government for not suspending the negotiations; how long would he continue the suspension for?

Mark Francois: For the avoidance of doubt, I say again that I am not proposing to stick my tongue out at anyone—not even at the Liberal Democrat spokesman, although during the Lisbon treaty debates there were times when I was tempted to.

Daniel Kawczynski: My hon. Friend makes some important points about energy supply. If we are to have a common European energy policy, the idea of Russia building a pipeline under the Baltic sea directly to Germany is to be avoided at all costs. Russia could blackmail eastern and central European countries, because it could supply western Europe directly, via the pipeline under the Baltic sea. Will he use his good offices to put pressure on the Germans on that issue?

Mark Francois: As my hon. Friend knows, some weeks ago, we called for a review of the Nord Stream project. I accept that the dispute was primarily between Russia and Ukraine, but because there have been clear knock-on effects for other countries in Europe, both within and without the EU, the lesson that many countries around the EU are drawing from the events of the past few weeks is that we have to look seriously at the issue of energy security. We cannot afford to be over-reliant on Russian supplies. That is an even bigger issue for a number of EU countries that take far more of their gas from Russia than we do; we take a relatively small proportion of ours from Russia, at least at present.

William Cash: Would my hon. Friend be kind enough to give way?

Mark Francois: I could hardly refuse an intervention from my hon. Friend.

William Cash: I am extremely grateful. I agree enormously with what my hon. Friend says about over-reliance on gas supplies from Russia, but will he bear in mind that it is by no means certain that the responsibility for the breakdown in relations between Russia and Ukraine regarding gas supplies is entirely Russia's? Many people believe that it is the fault of Ukraine.

Mark Francois: My hon. Friend makes a point that bears a little expansion. I acknowledged just a few moments ago that the dispute was primarily between Russia and Ukraine, but the reality is that it has obviously had a knock-on effect on a number of our EU partners, and on other countries in Europe. Russia will have been conscious of the likely implications when it took the decision to turn off the supply. I take my hon. Friend's point, but the decision has affected a number of countries in Europe—some of them seriously, as I attempted to set out in my remarks. I hope that he regards that as a reasonable, balanced reply.
	We wish to have a positive relationship with Russia. There are many potential areas of mutual interest. Russia needs a market for its oil and gas. It also needs investment, not least in its oil and gas industries. Russia surely does not wish to see the proliferation of weapons of mass destruction in the middle east and elsewhere. On all those matters, Russia and the west need each other's co-operation. We hope that Russia will come to realise that, and will act accordingly.
	The Government's policy of reopening negotiations has obviously been welcomed in Russia, but the crisis over the supply of Russian gas to Europe has demonstrated that rewarding Russia does not automatically lead to improved relations, although some seem to wish that it did. If anything, Russia sometimes seems to exploit weakness, rather than be impressed by it. The Foreign Secretary talks of hard-headed engagement with Russia; it can only be hoped that when it comes to the substance of the partnership negotiations, the EU will show more resolve than it perhaps has done in recent months. Following on from that, can the Minister assure the House that no final agreement will be signed between the EU and Russia if Russia is still in breach of the ceasefire plan, which, as the House must recall, was brokered by the European Union?
	We Conservative Members believe—this, in a way, answers the Liberal Democrat spokesman's point—that the Government should have displayed greater strategic patience in dealing with Russia. We also believe that the events of the past few weeks—and Russia's willingness to restrict gas supplies when it suits it, despite the restarting of partnership negotiations—should teach us that when dealing with the regime in Moscow, a degree of strength is often better than a degree of weakness.

Lembit �pik: Will the hon. Gentleman give way?

Mark Francois: I will, not least because I knew the hon. Gentleman so well at university.

Lembit �pik: I am grateful for that patronage, and apologise for arriving a little late for the debate. Does the hon. Gentlemanmy former fellow studentagree that the secret is to be hard-headed and to play tough, because that is what Russia does? Is he aware that the first cyber-war ever waged against a country was waged by Russia on Estonia, due to a dispute relating to certain political matters there? Would he recommend to the Minister that one formal condition should be that the state of Russia will not condone or participate in further cyber-warfare of any sort against any member state of the European Union, even when a dispute arises?

Mark Francois: I thank the hon. Gentleman for that pertinent intervention. It partly relates to the pertinent intervention made by my hon. Friend the Member for Salisbury (Robert Key), who talked about the involvement of NATO. As I understand it, following the Russian cyber-attack on Estonia, NATO has established a college to teach cyber-defence. It is based in Estonia, because that country has real experience of having been on the receiving end.

Charles Hendry: Will my hon. Friend give way?

Mark Francois: I will, but I am conscious that we do not have a great deal of time, and every time that I give way, we squeeze the time left for Back Benchers.

Charles Hendry: I am grateful to my hon. Friend. Does he agree that the disputes between Russia and Ukraine go back a long way? The first time that the gas supplies were cut off was in 1993. The disputes have always related to the non-payment of gas bills by Ukraine. This is the first time that a dispute has brought together the issues of non-payment of bills and transit charges. On this occasion, the Ukrainians were siphoning off gas supplies, so the pressure

Madam Deputy Speaker: Order. I must make a plea for short interventions. There is a limited amount of time available in this debate.

Mark Francois: I will be brief, Madam Deputy Speaker. I understand my hon. Friend's point that the issue goes back quite some time, but my point is that when the Russians turned off the supplies to Ukraine, they clearly realised that doing so would have knock-on effects in many countries in the EU. The pipelines that supply those other countries run through the Ukraine, and the Russians would have been cognisant of that when they took their decision.
	To conclude, I cannot sit down without briefly mentioning the fact that it is slightly more than two years since Alexander Litvinenko was murdered in London. Although the documents do not relate to that case, I feel obliged to say that we on the Conservative Benches feel that the matter cannot be allowed to rest. We still require co-operation from the Russian authorities to ensure that those who were responsible for the horrible murder of a British citizen in our capital city are finally brought to justice.
	We should not have restarted the partnership negotiations with Russia until it had complied fully with the ceasefire agreement that was brokered by the European Union. Unfortunately, Russia did not do that, so we had to part company with the Government on that part of their policy some weeks ago. I have to tell the Minister that our view has not altered.

Several hon. Members: rose

Madam Deputy Speaker: Order. A time limit of 10 minutes was to be imposed on Back-Bench speeches. However, in view of the fact that this debate must conclude at 8.38 pm and given that I would like as many Members as possible who wrote in to contribute to this debate to do so, I propose to reduce the time limit on Back-Bench speeches to six minutes.

Michael Connarty: I will try to stick to the issues that exercised the European Scrutiny Committee. I hope that the Chairman of the Select Committee on Foreign Affairs, my hon. Friend the Member for Ilford, South (Mike Gapes), to whom we refer the substance and merits of such matters, will be called.
	Let me quickly run through the history, because we have had far too short a time to talk about a relationship with a major player in the world economy. The 1999 Cologne European Council adopted a strategy towards Russia for four years that had four aims: to encourage the democratic reform process in Russia; to encourage economic reform; to promote regional and global stability and security; and to promote co-operation with Russia in areas of common concern, such as international crime and environmental questions.
	In July 2004, our predecessor Committee, of which I was a member but not the Chair, considered a Council report on the proposed successor to that strategy, which talked about an action plan embracing four common spaces: a common economic space, building on the notion of a common European economic space, which is a laudable aim in relation to Russia; a common space of freedom, security and justice; a space of co-operation in the field of external security; and a space of research and education. Those aims all seem the right direction to be travelling in. Unfortunately, we did not get buy-in from the Russian presidency on those four common spaces, and that is perhaps where matters went awry.
	Basically, that Committee recommended that the four common spaces be debated in a European Standing Committee, and that was done. During the debate, the then Minister for Europe agreed to update the Committee after each annual summit. One of the Committee's concerns, and why we asked for this debate, was not just about the substance of the EU-Russia relationship; it was that we do not feel that under the common strategy, which then became the four common spaces and which requires regular assessments and reports, we were getting the proper information from the Foreign Office about how such matters were being dealt with.
	It is now three years since that debate. There have been many developments in EU-Russia relations, most of which have been controversial, as we have heard today. The same can be said of the UK-Russia relationship. The EU-Russia summit in June 2008 finally saw the launch of negotiations on a new EU-Russia agreement. We have heard a rehearsal of what happened during the breakdown of that process in the Georgian fiasco, leaving aside who was the provocateur and who the responder in that matter.
	Primarily, we are talking about a summary and detailed description of the current state of the relationship following the Georgia-Russia conflict. The communication from the EU considered both the existing EU-Russia partnership and the co-operation agreement, and the ongoing need for a new agreement to be negotiated. As we have heard, the reopening of negotiations was agreed at the 10 November General Affairs and External Relations Councillet us leave to one side whether that was a climb-down, a pragmatic initiative or good common sense in dealing with a large neighbour with whom we have to work in future if we are to have a stable and settled European environment.
	The Minister for Europe told the Committee that she
	and the overwhelming majority of EU Member States
	believed that pursuing the negotiation of a new partnership and co-operation agreement was the best way to pursue EU interests across a range of other important issues,
	binding Russia into a rules-based framework and aiming to safeguard energy security.
	She said that the move was not
	a return to business as usual.
	However, I and the European Scrutiny Committee in general hope that it would indeed be a return to business as usual eventually, because an unstable relationship with Russia is not good for anyone.
	The Minister wrote to the European Scrutiny Committee on 14 November about the EU-Russia summit. As the Committee noted in its report, given what had been asked of successive Ministers for Europe, the latest letter was no improvement on its predecessors. There was nothing of substance in it and it was not available on the EU presidency's website. The Minister did not have much to say about the Russian talk of a new European security architecture and had nothing to say about President Sarkozy's response or the controversial position he took at the summit on proposals for the deployment of an anti-ballistic missile defence system in Poland and the Czech Republic, notwithstanding the lack of any mandate for so doing.
	Nor did the Minister mention, let alone discuss, President Medvedev's recently enunciated five principles of Russian foreign policy: compliance with international law; a multi-polar world; full and friendly relations with all countries; the unquestionable priority of protecting the
	lives and dignity of Russian citizens, wherever they may be;
	and a right to pay special attention to regions in which Russia has privileged interests. As experienced observers have pointed out, and as this debate has proven, those principles are contradictory and contain no mention at all of the maintenance of international security.
	All in all, the Committee felt that President Medvedev's controversial proposals and Russia's behaviour before and since raised profound questions, in particular about Russia's objectives and how member states should respond. In calling for this debate, we are signalling to the Minister that we are not happy with the reporting on the continuing relationship between the EU and Russia and the UK's involvement in it. We hope to see improvements in the future.

Edward Davey: I congratulate the hon. Member for Linlithgow and East Falkirk (Michael Connarty) and his Committee on securing this debate. I think we should have had a debate on EU-Russia relations much earlier, not least in the light of what happened in South Ossetia last summer. The issue is critical for the House and there are many difficult judgments to be made. Indeed, the House should have a much longer debate than this one. I get the impression that the hon. Member for Rayleigh (Mr. Francois) would support that proposal, and I hope that the Government will listen. I know that hon. Members asked for that debate in business questions, and it is a shame that we have had to wait until the new year for this rather short debate.
	There are so many elements to debatesecurity, energy, the economy, nuclear proliferationthat it is impossible to get them all in in this hour and a half. We should focus on the key issue of how the EU should develop its relations, in the light not just of the South Ossetian crisis, Russia's behaviour towards Georgia and its failure to implement every aspect of the peace agreement that President Sarkozy agreed on behalf of the EU, but of the increasingly autocratic nature of the Putin-Medvedev regime, which includes the closing down of the press, anti-democratic activities and the willingness to sweep aside the rule of law. The way the regime has behaved towards business interests, which includes not just British firms, is quite outrageous. There are huge problems with the Russian regime and I readily accept that. Russia is not a country that is particularly attractive. It is potentially dangerous and it is certainly dodgy. The question is: how do we react to that?
	We could go down the route of re-freezing the cold war, as it were, by having a stand-off, being tough and using cold war rhetoric to isolate Russia. I can see why people might take that approach, but I think that would be wrong. Despite all the problems that we have with the Russian regime, we have to have a dialogue with it. We have a dialogue with many other regimes in the world. We have their ambassadors here and we try to put our argument across to them because that is the right thing to do; it is good diplomacy. That is also the case in regard to Russia.
	The hon. Member for Rayleigh did his case no good when he refused to be specific when I asked him for how long the Conservatives wanted the EU to suspend talks with Russia if it failed to implement every dot and comma of the peace agreement over Georgia. How long would they advise that we isolate Russia and refuse to engage with it? I accept that that is a difficult judgment; there is no scientific answer to that question. However, in the world of realpolitik, there are so many issues of mutual interest involvedincluding Iran and the middle eastthat we have to engage with Russia.

David Wilshire: The hon. Gentleman said that dialogue with Russia was the better way to proceed. May I suggest that it might be the only way, in certain circumstances? What we are really trying to say is that our values and beliefs are better than theirs, and values and beliefs can be spread only through dialogue.

Edward Davey: The hon. Gentleman is absolutely right. If any hon. Member is in any doubt about that, I would urge them to go to the website of President Obama, where he talks about how we should meet the challenge of a resurgent Russia. Let us remember that he was speaking out against the threat of conflict in the Caucasus before it broke out in August. He was one of the leading international statesmen to highlight the dangers of a conflict there. After that conflict, he still thinks that we need to engage with Russia. On his website, he says that we need a comprehensive strategy that involves
	engaging directly with the Russian government on issues of mutual interest, such as countering nuclear proliferation, reducing our nuclear arsenals, expanding trade and investment opportunities, and fighting Al Qaeda and the Taliban; and also reaching out directly to the Russian people to promote our common values.
	I could go on. It is absolutely clear that the President of the United States thinks we should now be engaging with the Russian Federation. The Conservatives are therefore out of touch not only with the European Union but with the White House, and I hope that they will soon change their position, because they are looking rather isolated themselves.

Angus Robertson: Does it not concern the Liberal Democrats that, in recent years, the UK Government have actually cut their budget line for conflict resolution funding for non-governmental organisations in Russia and the Caucasus? Is that not a mistake? We talk about President Obama recognising the risks of conflict in the Caucasus, but that is something that the UK Government have patently overlooked.

Edward Davey: The hon. Gentleman makes a good point. I had the privilege of speaking to some of Obama's foreign policy advisers during the sideline discussions at the Denver convention, and they were absolutely clear about the need to increase diplomatic resources in the State Department. We should also look carefully at how we go about such things in this country.
	The real question is not so much whether we should be talking to the Russian Federation within a European Union contextof course we shouldbut how we can get our messages over as clearly as possible in those negotiations. Part of the problem with the European Union's position is the fact that there is division within the EU over how we should deal with Russia, and Russia is playing on that fact. It is playing one country off against another.
	The challenge for European diplomacy is somehow to get the incentives right within the EU and to deal with some of the issues that concern member states. Yes, that is about dealing with energy security so that we can arrange other methods of supply and become less reliant on Russia, but that will take a long time. We need to deal with some of the countries that are, frankly, almost out of control in their relationship with Russia. In that regard, I am particularly focusing on Italy, where Prime Minister Berlusconi's business interests are taking a rather higher priority in his thinking than the long-term interests of Italy or Europe.
	I would also argue that we need to look at some countries' very genuine historical concerns with Russia. Let us look at the Baltic states. My hon. Friend the Member for Montgomeryshire (Lembit pik) pointed out that they have had some really aggressive times with Russia, in which Russia has been pretty abominable. One of the key outstanding issues is whether Russia will sign treaties that accept the borders of the Baltic states, particularly Estonia. That should be a key question, and if we can deal with some of those issues, we will gradually get more EU unity over Russia. I think hon. Members on both sides of the House would welcome that because it would make our voice, and our ability to influence Russia, much more effective. That would be welcomed by the new Obama Administration.

Lembit �pik: One of the advantages of being a member of the European Union is, supposedly, security. Many of the points that my hon. Friend is making, economically, politically and culturally, concern security-related measures. If he is saying that the Government should be robust, explicit and clear in dealing with Russiawith which we must deal, of coursein the collective interests of the EU, I absolutely agree with him.

Edward Davey: I thank my hon. Friend for his intervention.
	Because so many of our colleagues wish to speak this evening, I shall bring my remarks to a close, but I shall make one point that the hon. Member for Rayleigh did not mention, and relate it to where we take these matters in the longer term. The Russian experience in South Ossetia was not actually a victory. Russia has been isolated by it; it was a diplomatic setback. When Russia said it was going to recognise the independence of Abkhazia and South Ossetia, it got no support. Well, actually, it didit got support from Hamas and from Nicaragua. China, in particular, said that that was not the way to behave, and Russia has been diplomatically isolated as a result. That has had implications, because people have realised how isolated it is on that key issue. Russia has had a defeat, a setback. With the price of oil and gas going down, and with the economic problems hitting Moscow even harder than they are hitting this country, Russia is not as strong as some people are making out. It is in our interests to see that as an opportunity.
	Over not decades but centuries, the relationship between Russia and Britain in particular, and between Russia and the other European Union countriesespecially the central European countrieshas varied between two different visions. Sometimes Russia has taken the role of Mother Russia, adopting an imperialistic stance and saying that it is Russia against the rest. Alternatively, it has taken what we might call the St. Petersburg approachthis has happened occasionally, although rather too infrequentlywhereby it has adopted a more mainstream European approach and wanted to be part of civilised, mainstream Europe.
	Despite many of the appalling aspects of the present regime in Moscow, there are still people who want to see that second vision, and the challenge for us is to support them. They are the voice of democracy and political reform. Their lights might be flickering at the moment, but we must use every tool at our disposal, especially diplomacy, to keep them alight. This is an historic challenge for the European Union, and one of our missions. I am not sure whether the hon. Member for Stone (Mr. Cash) would agree with me on this, but I think it will be an historic challenge for the European Union to bring Russia into the mainstream of Europe. If it does that, it will be able to build on the many other achievements that the European Union has to its credit.

Bruce George: I believe that the House of Commons and the House of Lords can be quite pleased with themselves, because some excellent reports have been published on Russia and the EU by the Foreign Affairs Committee, the Defence Committee, which is going out to Russia and Georgia soon, the House of Lords European Union Sub-Committee and, of course, the European Scrutiny Committee. There is more than enough information available for us to make a judgment. It is difficult to make a judgment, however. I suspect, having heard some of the voices here today, that anyone who argues with scepticism about Russian developments will be treated with some contempt and indifference, if that is possible, but we have to look at developments, and I am not yet in a position to sayI would not venture to say itthat we are moving back into the era of the cold war.
	One has to spot trends, and if trends in Russia continue, we should be getting a little nervous. Although I really want engagement, that does not mean to say it should be a supine engagement. If Russia invades a sovereign nation, it should not just be given a little yellow card or five minutes in the sin bin and then be allowed to rush back into the mainstream. Russia has to realise that that cannot happen if it is responsible for the killing of journalists or has at least been complicit in their killing; if it restricts civil society and the rights of non-governmental organisations; if it conducts endlessly fraudulent elections; or if it is clearly responsible at some point in time for using energy as a weapon. As to the argument about whether it will use energy as a weapon, let us not be stupid; it has done so at least 10 times, the 11th time might be really serious.
	So yes, let us be prepared to talk, but let us also consider the way in which Russia deals with its adversaries or its friends who become adversaries. The transformation in what Russia is doing has been very considerable since the good Putin-Blair days. Is that the case because of us, or because of developments in Russia? We know that Putin said that the collapse of the Soviet Union was the greatest catastrophe of the 20th century. We are moving to a position in which, even if the alarm bells are not ringing already, they soon will be.
	We would like to deal with a country that is democratising, but a survey two years ago showed what people there thought of democracy and the system of government they preferred. Some 35 per cent. wanted to go back to the Soviet system, 26 per cent. preferred the current system, which is hardly democratic and 16 per cent. were interested in and supportive of western-style democracy. Others accounted for 7 per cent. and 16 per cent. had no opinion. At this stage, we are not dealing with a country that is yearning for pluralism. It is also a place where what passes for sovereign democracy is not sovereign democracy.
	I concur entirely with the two hon. Members who argued that Russia was playing with the European Union. It is doing it not just because of Prime Minister Berlusconi; let us read what was said recently in the RUSI publication about Mrs. Merkel. We should also look at what is happening in Greece. One or two countries in east and central Europe are complicit. Why? Is it because of history or because of economic optimism, or is it due to fear of the tap being turned off? One thing is patently obvious to me: some people and Governments in the EU and NATO are espousing a Russian interest, which could make collective decision making in both those organisations virtually impossible.
	Developments in Russia are worrying. As I said, there is in essence a single party. No one can tell me that the other parties are part of a free-party system; it is basically a single mass party, although there is no longer a single mass ideology as there was under communism. There is very clearly a secret police, control of the mass media is at a high level and control of society is very considerable. I am afraid that Russian democracy, if it ever existed, is on the decline.
	I have headed many election observation missions over the last seven or eight years and my greatest anxiety is over the fact that the Russians have run crooked elections; they have always done so. If anyone thinks that Yeltsin did not run crooked elections, they have not seen the evidence. When we are dealing with Russia, we are not dealing with a country that is remotely democratic or even, I suspect, aspiring to be democratic. That is clear when we see what is happening to the media. My particular anxiety is about civil society, which is always merely a concept in Russia; it is being compromised by people being put in jail and intimidated, which is most regrettable.
	What of Georgia? Well, there are some supporters for the Russians. It seems to me that supporting Russia and saying that Georgia started it all is a bit like blaming Czechoslovakia or Poland for what the Germans did. It is so disproportionate

Mr. Deputy Speaker: Order. I am afraid that the hon. Gentleman has had his six minutes.

David Wilshire: By a happy coincidenceI hope it is happyI got back from Moscow at lunchtime today, having spent two days there. I was there with the president of the Parliamentary Assembly of the Council of Europe and with the four political party group leaders, finalising our report for a part-session of the assembly next week. That report is on the consequences of the war between Russia and Georgia and the steps taken by both sides to implement Council of Europe resolution 1633, which demands the very things that people in this House and elsewhere in this country have been saying must happen.
	I have been deeply involved in all these matters since the war broke out. That involvement has taken me to Tbilisi, Gori, South Ossetia and Moscow several times. All that experience has reinforced in me the belief that jumping to conclusions is usually a bad idea. Five months on, the scene looks really rather different. Five months ago, most of us believed that Russia had started the fighting, on 7 August. I think the world community has now come to the view that the fighting on 7 August was started by the Georgians. Who knows? Nevertheless, the criticism of both sidesI stress it is of both sidesis genuine, proper and needs to be addressed.
	I did not want to speak on this matter. I do not want to talk tonight about who did what and when, or who is to blame and who is not. I should like to pick up on comments made in one of the documents before us:
	The European Union has a vital interest in seeking stability, better governance and economic development at its Eastern borders.
	I can only say amen to that. There are all sorts of reasons why; the economic ones were mentioned earlier. Russia is the EU's third largest trading partner; half of Russia's overseas trade is with the EU; and 25 per cent. of oil and gas coming into the EU countries comes from Russia. That is a clear case, but again it is not the one I want to pursue.
	In the remaining time available to me, however, I want to focus on something more fundamental: whether our future security and our future prosperity are better with a stand-alone Russia or a Russia that is integrated into Europe. Russia is a country in transition. I support and agree with many of the remarks made by the right hon. Member for Walsall, South (Mr. George) about Russia's shortcomings; I have observed elections there as well. It is a country in transition from totalitarianism to democracy, and it is showing what a slow and difficult process that is. Russia has had Yeltsin chaos, the humiliation of a collapsed economy and the same financial crisis that we face. It is worth noting that unrest has already broken out in Vladivostok in respect of the financial crisis.
	My recent visit has convinced me that the hon. Member for Kingston and Surbiton (Mr. Davey) is correct that Russians are asking the same question: is it better for Russia to go it alone or to integrate? My assessmentit is a guess, as who knows what goes on in the Kremlinis that the Kremlin leadership thinks that going it alone is the better way forward, but that a significant minority disagrees with that view. If we cut off dialogue with Russia, we cannot help that minority, which needs our help. If we want to see what we are calling foran end to some of the nonsense and a better democracywe need to help those in Russia who believe in that.
	Of course, that is not a call for business as usual. The Council of Europe investigation has made it blindingly clear to the Russians that we are not talking about business as usual; we are not even talking about a slap on the wrist. I understand only too well that if the international community does nothing, the Russians will have won, in a sense, if we want to talk in those terms. If on the other hand we do too much and try to kick Russia out of the world communitysomething we cannot do; the more I look at this matter, the more sympathy I have with the hon. Member for Thurrock (Andrew Mackinlay)it will be as bad as doing too little. So it is not business as usual.
	One may rightly ask whether, if the Russians have a problem and want our help, that situation matters to us. I suggest that there are a fair few pointers. Let us consider the issues involved. One is security. Does not the Russia-Georgia episode, whoever is to blame, tell us that we ought to worry about the security of Europe? Another issue is the gas situation involving Russia and Ukraine. Does it matter who is really to blame? The situation ought to tell us that our prosperity is at risk if we do not become engaged in it. Yesterday's murders in Russia, which the hon. Member for Walsall, North (Mr. Winnick) mentioned, and the spread of criminality matter to the rest of us.
	Let me ask a final question. If the situation in Russia does matter, how can we help Russia to change? It is not keen on rapid change, which it has experienced twice recently. The Bolshevik revolution brought it chaos, and it did not much care for that rapid change; Yeltsin brought it change, and it did not much care for that either. So how do we help to bring about change? Do we do it by poking our tongue out, to quote the hon. Member for Thurrock? Do we do it by refusing to talk? Or do we do it by engaging, and helping those who want the same as us?

Mike Gapes: The European Scrutiny Committee and its Chairman are to be congratulated on bringing this issue to the House. For the reasons given by the hon. Member for Spelthorne (Mr. Wilshire), I think it very important for us to watch developments in Russia very closely.
	It is clear that the arrogance and cockiness of the Putin period could change rapidly if the rapid reduction in gas and oil prices continues. Russia has had huge surpluses for many years. Now it faces the major challenges of reconstruction, a population that continues to decline or remains stable and a need for foreign investment, yet it causes problems with its attitude and behaviour. The Russian stock market has been taken out of operation several times, and has seen some huge crashes in which oligarchs have lost billions. I believe that there may be people in Russia now who will be quite worried about how the public will react in the coming years.
	The Minister was right to refer to the need for a structured, regular dialogue with Russia, but that does not quite represent the permanent partnership arrangement that I think the Commission envisaged when it and the Council and Ministers agreed to reopen the process. The Minister will know that, as we made clear in our 2007 report, the Foreign Affairs Committee was sceptical, indeed doubtful, about the point of reopening those discussions. We thought that it might lead to endless disputes about values and about issues that are still unresolved, such as the systematic harassment of the British ambassador in Moscow, the closure of the British Council offices, and the way in whichmy right hon. Friend the Member for Walsall, South (Mr. George) referred to thisnon-governmental organisations, human rights activists and others have been harassed.
	As recently as December, the Duma passed new legislation that basically abolishes jury trial in a very large number of cases, and returns to the Stalinist period and the Bolshevik model for dealing with prosecutions. The definitions of people who are carrying out acts of treason could be interpreted to apply to anyone who speaks to a foreign journalist. If that is indeed the case, there are worrying trends in Russian society.
	My right hon. Friend the Member for Walsall, South quoted the statistics correctly. It is not surprising, if the term democracy is associated with the drunken disaster of the Yeltsin era, that when people see a strong man bringing order out of chaos, they start to think that that is better than what they had before. Given the association with a rise in incomes resulting from a global increase in oil and gas prices, it is clear that for eight or nine years things have been getting better and better for most Russians, but that will not continue indefinitely.
	Unlike China and India, Russia is massively dependent not on its own manufacturing or domestic growth or on foreign direct investment on manufactured goods and exports, but on the sale of crude commodities around the world. That makes Russia very vulnerable. We know that Russian society contains some very nasty political groups on the far right, including the Nashi group, who are supporters of President Putin but also support the people who carried out the attacks on the British diplomats in Moscow.
	In the time that remains, I want to touch on two or three more issues. The Commission document refers to the development of
	a common position on Russia's proposal for a new European security order.
	President Sarkozy has finessed that, as it were, into some kind of super-OSCE consideration, perhaps involving a meeting at some point in the next few months, but the issue is not going to go away. It is a long-standing Russian ambition effectively to get rid of NATO by establishing an all-Russian security system whereby it becomes very weak.
	It occurs to me that the onset of President Obama today will pose some very difficult issues for the United States Administration. Like the hon. Member for Kingston and Surbiton (Mr. Davey), I attended the Democratic convention in Denver, and I was struck by the difference in the views expressed by Democrat academics on the panels when dealing with the attitude to Russia and Georgia. There is no consensus. I think that one of the important questions will be the direction in which President Obama's Administration go when it comes to issues such as missile defence, in regard to which there is clearly a needfrom the Russian point of viewfor a change in the American approach. Will that happen, and if it does, will we see constructive Russian engagement with the United States with the aim of solving the problems in the middle east and working towards a resolution of the situation in Iran?
	Russia is an important partner and permanent Security Council member, and we also need good relations with her.

William Cash: I very much concursomewhat surprisingly, perhapswith the closing remarks of the hon. Member for Ilford, South (Mike Gapes). It is absolutely essential that we maintain good and proper relations with Russia. The dialogue has been disturbed recently, but the reality is that we are dealing with a world power. It may be that a good many of its tanks and other equipment are rather dodgy nowadays, but the reality is that it still possesses massive inter-ballistic missile capacity, it is a country of enormous importance in world relations, and it has historically been integrated into the thinking of all the great nations of western Europeand, indeed, the United States, China and Indiaover the last 150 or 200 years. It would be impossible and, I think, rather absurd for us to adopt the idea that we should not have the best possible relations with Russia, even given that there are a number of matters on which there are reservations.
	As for the question of democracy, let us not forget that it is only relatively recently, in terms of the history of Russia, that we had a Soviet Union. We really must examine the situation realistically without prejudice to the difficulties in relation to human rights and so on to which reference has been made.
	To achieve that, we must bear in mind relations with our other eastern European allies. I am not persuaded, as hon. Members know, that a European Union security arrangement is a good idea. I believe strongly in a form of association, and I know from my frequent visits to eastern Europe with the European Scrutiny Committee in the past few yearsmost recently to the Czech Republicand my contacts in the Baltic states and so on that if one asks what has made those countries so interested in the European dimension, the answer is defence and their experience of being under Soviet domination during the time of the Soviet Union. We must therefore think carefully about a matter that has hardly been touched on todaymissile deployment. We must ensure that Russia understands what we have in mind for NATO, and we must do everything to ensure that NATO survives and prospers. Some people's recent activities concerning GeorgiaI single out those of President Sarkozy last Augustwere nothing more than grandstanding.
	As I have said, Ossetia and other areas in that part of the continent were affected by the Kosovo declaration of independence and the European Union's reaction. Last February, a long time before the events took place, my hon. Friend the Member for Uxbridge (Mr. Randall) and I had spoken strongly about the matter and said that the subject should not be opened up because that would lead to other problems, including in Ossetia. Sure enough, it did. A strong policy that was well established in the 18th century is quieta non moverelet sleeping dogs lie. There are enclaves all over Europemany more than people realiseand a recent interesting programme, Crossing Continents, explained them. Kaliningrad is another. If the equilibrium is disturbed and a country with only 16,000 troops gets into conflict with the might of Russia, as Georgia did, the consequence is inevitable.

David Wilshire: It may help the hon. Gentleman's argument if he knows that in the past two days I have heard it said repeatedly that what happened in Kosovo made it inevitable that there would be fighting.

William Cash: I am very glad to have that endorsement because, last February, we were lone voices, although there were one or two others, including that of the hon. Member for Thurrock (Andrew Mackinlay). It is important to understand that.
	On international law, I was gravely concerned by the statements made by our United Nations representative. Since then the matter has been referred to the International Court of Justice. There are many reasons why, in the light of what my hon. Friend has just said, it would have been far better for us not to be precipitate in adopting our position. I am much more uncertain about it and, having followed the situation, watched programmes, and read about it, the more uncertain I become. We must be careful.
	On gas and energy supply, for many years I have been writing about the problems that I anticipate with Russia as North sea oil comes to an end. Although, as the Minister said, supplies from Russia are running at 2 per cent. at the moment, we all know that, even allowing for our arrangements with Norway, it will be necessary to draw on other gas supplies. They may come from the middle east, Qatar, or liquefied natural gas, but the bottom line is that Russia is a big player for the future, so it is important that we are realistic about our use of resources. I am very keen that we should be involved in responsible coal-fired carbon capture and nuclear development to ensure that we are not entirely dependent on Russia for gas into the indefinite future.
	We must work on the basis of a proper dialogue with Russia. I am a little concerned about the line that my party's Front-Bench spokesmen have taken, but I have made my position clear. All I would say is that, in the circumstances, the best thing that I can do in response to the fact that my hon. Friend the Member for Rayleigh (Mr. Francois) has been promoted to the shadow Front Bench

Mr. Deputy Speaker: Order.

Caroline Flint: Our debate has been short but helpful. We have heard Back-Bench speeches from my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty), my right hon. Friend the Member for Walsall, South (Mr. George) and my hon. Friend the Member for Ilford, South (Mike Gapes), and Opposition Back-Bench speeches from the hon. Members for Spelthorne (Mr. Wilshire) and for Stone (Mr. Cash).
	It is important that the European Union is clear about what we want from our relationship with Russia and that we pursue it vigorously. It is also important that we recognise the valuable contribution that we can make to global challenges by working more closely with Russia. However, for that relationship to work, we need an open and honest dialogue with Russia, speaking up in defence of our interests and concerns when we disagree.
	Such an approach enables the EU and the UK to achieve our international and domestic objectives, increasing security and prosperity for EU member states' citizens, as well as those of Russia.
	Several issues were raised during the debate and I shall try to address them in the short time I have in which to speak. The hon. Member for Rayleigh (Mr. Francois) asked about the refusal to sign the partnership and co-operation agreement if Russia has not withdrawn in the conflict with Georgia. The negotiations are continuing and, as I said, their pace and tone will be affected by Russia's actions in Georgia, as well as other concerns. The Commission's negotiating mandate requires it to take into account developments in Georgia during the negotiations. However, placing unilateral vetoes on any agreement at this stage could jeopardise important outcomes that we all support.
	The murder of Alexander Litvinenko was mentioned. It was a chilling crime, which placed thousands of innocent residents and visitors at risk. The courts here have issued a warrant for the arrest of Andrei Lugovoy on a charge of murder, and that warrant remains valid. The Russian refusal to respond satisfactorily to our request for his extradition has not deflected us from the overall objective of seeing him brought to trial before the UK courts.
	My hon. Friend the Member for Linlithgow and East Falkirk raised some concerns about the way in which I have responded to the European Scrutiny Committee and the service that the Foreign and Commonwealth provides. I believe that we have kept the Committee quite well informed, but I am always prepared to listen to what more it might want. We have tabled written ministerial statements, and written several explanatory memorandums and letters. We got some compliments from the Lords scrutiny Committee about how well we have done. However, I note my hon. Friend's comments and welcome the Committee's interest.
	European security architecture has been mentioned. We have tried and tested structures for delivering and promoting security in Europe, including NATO, the EU and the Organisation for Security and Co-operation in Europe. They can and do evolve to provide maximum security and stability. It is important that any new proposals about architecturewe have yet to see the details of President Medvedev's proposalsbuild on existing structures and do not undermine them.
	I thank the European Scrutiny Committee for raising the issue. The short debate has been interesting and wide ranging. I look forward to discussing EU-Russia and UK-Russia relationships further with hon. Members. We need the goal of a firm, rules-based relationship between the EU and Russia. That can only be in the best interests of UK, EU and Russian citizens.

Question put:
	 The House divided: Ayes 325, Noes 152.

Question accordingly agreed to.
	 Resolved,
	That this House takes note of European Union Documents No. 15299/08, Commission Communication Review of EU-Russia Relations and No. 15300/08, Commission Staff Working Document accompanying the Commission Communication Review of EU-Russia Relations; and supports the Government's policy on the future of the relationship in view of recent developments.

Business without Debate

DELEGATED LEGISLATION

Mr. Deputy Speaker: With the leave of the House, we shall take motions 4, 5 and 6 together.
	 Motion made, and Question put forthwith (Standing Order No. 118(6)),

Capital Gains Tax

That the draft Double Taxation Relief and International Tax Enforcement (Taxes on Income and Capital) (Isle of Man) Order 2008, which was laid before this House on 13 November, in the previous Session of Parliament, be approved.
	That the draft Double Taxation Relief and International Tax Enforcement (Taxes on Income and Capital) (Netherlands) Order 2008, which was laid before this House on 13 November, in the previous Session of Parliament, be approved.
	That the draft Double Taxation Relief and International Tax Enforcement (Taxes on Income and Capital) (France) Order 2008, which was laid before this House on 13 November, in the previous Session of Parliament, be approved. (Mr. Frank Roy.)
	 Question agreed to.

EUROPEAN DOCUMENTS

Motion made, and Question put forthwith (Standing Order No. 119(11)),

Safety of Toys

That this House takes note of European Union Document No. 5938/08 and Addenda 1 and 2, draft Directive on the safety of toys; and welcomes the Government's actions in support of European measures aimed at securing an appropriate level of safety for toys available on the internal market and a strengthened internal market mechanism without imposing a disproportionate burden on the UK toy industry.  (Mr. Frank Roy.)
	 Question agreed to.

PETITIONS

Northern Rock

Ronnie Campbell: I have a petition from the Northern Rock shareholders of my constituency [ Interruption. ]

Mr. Deputy Speaker: Order. A petition is being presented. Will hon. Members who are leaving do so quickly and quietly so that we can proceed?

Ronnie Campbell: I have a petition from the shareholders of my constituency. They are asking for a fair contribution from the Government and a fair share of the shares that they lost when Northern Rock was taken over and nationalised.
	 Following is the full text of the petition:
	 [ The Petition of small shareholders and supporters of Northern Rock of the Blyth Valley constituency in the North East of England,
	 Declares that it welcomes the acknowledgement by the Government that it must pay compensation for nationalising Northern Rock plc, but that the terms of reference for the valuation of the shares are wrongly based as the company was not in  administration and was still a 'going concern' .
	 Further declares that if these terms are unchanged there will not be a fair compensation payment which will lead to many in our region having their savings and pensions undermined which in turn will have a negative impact on the North East's economy.
	 The Petitioners therefore request that the House of Commons calls on the Government to reconsider the terms of reference given to the valuer so that he can fully reflect the true value of Northern Rock shares.
	 And the Petitioners remain, etc.
	[P000307]

Chris Mullin: I have a similar petition, signed by nearly 200 of my constituents who are concerned that they may not receive a fair valuation for their shares in Northern Rock.
	The petition states:
	The Petition of small shareholders and supporters of Northern Rock of the Sunderland South constituency in the North East of England,
	Declares that it welcomes the acknowledgement by the Government that it must pay compensation for nationalising Northern Rock plc, but that the terms of reference for the valuation of the shares are wrongly based as the company was not in administration and was still a 'going concern'.
	Further declares that if these terms are unchanged there will not be a fair compensation payment which will lead to many in our region having their savings and pensions undermined which in turn will have a negative impact on the North East's economy.
	The Petitioners therefore request that the House of Commons calls on the Government to reconsider the terms of reference given to the valuer so that he can fully reflect the true value of Northern Rock shares.
	And the Petitioners remain, etc.
	[P000310]

RAIL FARE INCREASES (SOUTH-EAST)

Motion made, and Question proposed, That this House do now adjourn. (Mr. Watts.)

Gregory Barker: I am extremely grateful for this debate on rail fare increases in the south-east, because it gives me the chance to put before the House an issue of real concern to my constituents, which is causing a great deal of anger among train passengers in my part of Sussex.
	My constituents in Bexhill and Battle are particularly appalled at the astronomical train fare hikes being imposed by Southeastern Trains on the Hastings to Charing Cross lines. My constituents, who rely on stations such as Stonegate, Etchingham, Robertsbridge, Battle and Crowhurst, are rightly angry and up in arms about excessive and unjustified ticket price rises.
	This January, as the Minister will know, regulated fares rose by an average of 6 per cent. nationally, more than 3 per cent. over inflation, despite repeated Government promises that they would rise by only 1 per cent. above inflation. The Government have chosen to use the July 2008 figure of 5 per cent. inflation rather than the year-end figure of 2.1 per cent. as the base rate, directly hitting passengers in the pocket at a time when Labour's recession is squeezing hard-working families' finances in Bexhill and Battle just as it is everywhere else in the country.

George Young: Does my hon. Friend recall that in the period immediately after privatisation regulated fares were controlled at RPIthe retail prices indexminus 1? Does he agree that that was part of a sustainable transport policy that gave a clear signal to rail passengers that their fares would go up by less than the rate of inflation? Does not moving to RPI plus make it more difficult to have a sustainable transport policy?

Gregory Barker: My right hon. Friend makes an excellent point about short-term rip-offs. Unfortunately, the combination that we have now is the worst of both worlds, as I shall explain a little later in my remarks. There is a total lack of long-term strategy and, as a result, short-term fare hikes are being made because of the failure to invest for the long term.
	Why have these huge national price increases been made? The Government have obliged the train operating companies to pay huge franchise premium payments, which can be met only by increasing the fares. In effect, that is another way for the Government to claw money from the public: in effect, it is another stealth tax. Why are the Government making rail travel so much more expensive at a time when Ministers preach to us that we should all be switching to public transport to lower emissions and reduce traffic congestion?
	Just this week, figures came out showing that, in terms of cost per mile, Britain's rail passengers are the most hard squeezed in Europe. Now, I do not expect fares here to compare with fares in Serbia, where 10 will take one 512 miles, but it does seem ridiculous that, in Britain, for the same money one can travel just 26 miles. In reality, the Government's mismanagement of our rail network over the past decade, and their failure to get costs under control, have meant that they have no long-term strategy to cope with the increasing demand for rail travel other than simply to price people off the railways by raising fares.
	Consistent under-investment and a lack of strategic vision have led to unfair price rises and to the taxpayer, yet again, bearing the brunt of the Prime Minister's sloppy financial management. Nowhere in the country is that more true than in my constituency and elsewhere along the East Sussex-Kent border, where commuters have borne price increases well into double figures. For example, my constituents who travel from Battle station into central London have suffered a 10.3 per cent. increase in the price of a weekly season ticket.
	Etchingham is another town in my constituency, and people who commute from there have suffered an 8.3 per cent. rise in fares. That is clearly above the national limit of 6 per cent., but it is also higher than even the 8 per cent. that had to be permitted by the regulator as an exception to Southeastern trains.
	So what is the justification for this extra cost? It is to subsidise the deployment of the Javelin train, on a line that will not even service any stations in my constituency. The pill becomes even more bitter for my constituents in Battle to swallow because they know that they are suffering fare increases greater than those being imposed at Ashford station, which at least will see the benefit of the new Javelin train.
	Nor is the Javelin train on the Ashford line an easy alternative, as some people at head office seem to think, because in fact Ashford is 34 miles from Battle. This all smacks of a cursory knowledge of our area on the part of those making decisions in London. The rises imposed by the Department for Transport in Whitehall singularly fail to understand the geography of East Sussex: it is centralised, top-down decision making of the worst possible sort.
	I understand and support entirely the need for new investment in our railways. Indeed, my party recently announced plans for a new national network of high-speed trainsBritish TGVs fit for the new century. In addition, I accept that our new carbon emissions targets, adopted in the Climate Change Act 2008, have give an even greater urgency and focus to the goal of modernising our transport networks.
	After 10 years of neglect and under-investment, with severe capacity shortages on our networks and with the Treasury already at historic levels of debt, the costs of this investment are necessarily borne by those who will benefit from improved services. Indeed, the Government's White Paper of 2007 enshrined the sensible concept that the user pays. But that, in essence, is the problem and the gripe on our line, because my constituents are not the users of this new service.
	I do not object to the new Javelin trainsfar from it. I welcome them, but why are my constituents being singled out to bear a disproportionate burden of the cost of that new investment? And to rub salt into the wound, rather than suffering fare increases to see an improved service on their own line at least, they are subsidising other areas. My constituents are paying over the odds and face the galling prospect of a deteriorating service on their own Hastings to Charing Cross line.
	My constituents are not alone. Amber Rudd, the hard-working Conservative candidate in Hastings, has made this point in her local campaign against the 10.39 per cent. price increases at Hastings and has written to tell me:
	Each year local commuters have been stung by exorbitant increases in the price of rail travel. This year we are enduring an increase of over 10 per cent. But there is no corresponding improvement in our servicesno more seats on the crowded trains, or faster travel to London. How long are Hastings residents to endure a deteriorating service at an ever increasing cost?
	The figures bear out Amber Rudd's concerns. More than a quarter of passengers using Southeastern's services rate availability of seats as poor and complain about the company's handling of delays, more than a third rate their value for money as poor, and more than 40 per cent. criticise the lack of parking space at stations, an issue that is particularly acute in my constituency at Battle, Crowhurst, Stonegate and over the border at Wadhurst in the constituency of my hon. Friend the Member for Wealden (Charles Hendry). A staggering 50 per cent. rate the toilet facilities and availability of staff as poor.
	Can we expect any improvements? Hardly. In the past two weeks Southeastern has announced the axing of 300 jobs, so it seems unlikely that my constituents will suddenly find cleaner toilets or more helpful staff on station platforms. Even more seriously, my constituents frequently endure severe overcrowding on long journeys. Morning peak services average 14 per cent. of passengers standing, and capacities hitting 36 per cent. over the recommended load factor of the trains. The Government's response to such overcrowding seems to be simply to price people off the trains.
	My constituents have suffered declining quality of service and sustained price increases, despite the long-running campaigns to improve services led at a district level by hard-working local councillors to whom I pay tribute, such as Rother Councillor Ian Jenkins from Etchingham, and at county council level by the cabinet transport member Councillor Matthew Locke. Can the Minister explain to my constituents what the double-digit increases will be paying for on their line? Can the Minister explain why, when the Government claim to be trying to attract people on to the railways, it now costs less for two people to drive into London from my constituency than to take the train, even at the cheapest fares?
	The Labour Government seem to have no long-term strategy to fix the problem. They have pressed ahead with a policy of short-term franchises that has given operators no incentive to make long-term investments in infrastructure or rolling stock. Many carriages have a lifespan of 30 years plus. To expect standards to be maintained when franchise holders have as little as five years' interest in the business is naive and ridiculous, and it is the passengers who suffer. No wonder nearly a fifth of Southeastern's passengers complain about the upkeep of station buildings and the repair of trains.
	Parking provision has clearly had no strategic oversight. I frequently arrive at stations such as Battle and Crowhurst to find streets around the station choked with parked cars. Passengers often find stations unmanned, which, as well as being frustrating for those in need of information, means that some disabled rail users struggle to access the service at all.
	Is it not clear that we must re-evaluate how rail franchises are operated? We cannot just blame the companies. Longer-term franchises will give companies a sound business reason to make the long-term investment that is needed. In addition, squeezing rail companies for vast sums over short periods leads them desperately to cash-crop the consumers for five or eight years without making a significant investment beyond re-branding the timetables, before handing on a crumbling service to someone else.
	We must free franchise operators from constant Whitehall meddling. There is a pressing need to incentivise private sector investment in our railways. Given that Ministers now have more control over rail operations than was the case under British Rail, it is not surprising that operators are often hard-pressed to find reasons to stay in the sector for the long term. Longer-term vision, and more flexible franchises with a focus on customer satisfaction and quality of service, are essential.
	If we are to hit our 2050 emissions targets and enjoy the rewards of decarbonising our economy, rail must play a crucial role as it provides reliable low-carbon transport that is good value for money and enhances, not detracts, from the quality of life of constituents such as mine in Bexhill and Battle. We must put rail at the heart of a sustainable transport system and make the right long-term investments now to ensure that we have the transport system that we will need in future decades. However, if in so doing the Government tread unfairly on parts of the country, such as my constituency, that already rely heavily on these transport links, and if in these challenging economic times, they expect those areas to be unfairly and disproportionately penalised and to subsidise projects elsewhere after years of squandered public spending, they will punish the very rail users whom they profess to be making these investments to help.
	People in the south-east are no strangers to being ripped off by Labour. The Prime Minister is desperate to tell us about all the real help that he is giving hard-working British families. We have seen precious little of that in Bexhill and Battle. Will the Minister tell us what real help he will give in respect of rail fares on the Hastings line? How can he make them fairer and more proportionate? Can he assure my constituents that the past 10 years of strategic anarchy on our railways will come to an end? Can he explain why, despite claiming to have seen the light on high-speed rail, the Government have given no commitment that any new high-speed rail infrastructure will be built? Can he explain why, despite their pledge two years ago to introduce 1,300 new carriageswithout which the National Audit Office has said overcrowding will continue to get worsethey have yet even to order that number, let alone bring them into service?
	Against that backdrop of failure, under-investment and lack of foresight, can the Minister claim to have a sensible and coherent strategy to provide a transport system that delivers value for money, let alone helps us reach our emissions reduction targets?

Christopher Chope: I am delighted to congratulate my hon. Friend on securing this important one-and-a-half-hour debate. Is he disappointed that not a single Labour Back Bencher from England is present in the Chamber?

Gregory Barker: I am disappointed. I thought that the hon. Member for Hastings and Rye (Michael Jabez Foster) might have been here, given his constituency's significant interest in the debate. However, we know that Amber Rudd, who we hope will be his successor, is campaigning hard on these issues; I know that she will make the voice of Hastings heard on this issue.
	Can the Minister at least give the House the assurance that his Department will, if nothing else, look again at the maps of Kent and East Sussex, take on board how unfair it is that my constituents are singled out to pay for the new Javelin train servicewhich lies way beyond a sensible drive time from Bexhill and Battleand endeavour to come up with a more equitable and logical way to spread the load of payment for those trains?

Roger Gale: I thank my hon. Friend the Member for Bexhill and Battle (Gregory Barker) for creating this opportunity for those of us who represent seats in the south-east to refer to a source of burning anger for our constituents.
	This is the third year in succession in which our constituentsmy constituents travelling from Margate, and those travelling from Westgate-on-Sea, Birchington-on-Sea, Herne Bay and right across east Kenthave faced an above-average fare increase. We are told that that increase is necessary to pay for the bullet train to which my hon. Friend referredthe much-vaunted fast rail service that is going to speed the journey from Kent to St. Pancras. The advertising on Southeastern's website says:
	New high speed train services from Kent to St Pancras...will dramatically reduce journey times.
	Oh no they will not. They might reduce the travelling time just a little from east Kent to St. Pancras, but my constituents do not want to go to St. Pancrasthey want to go to Victoria, Cannon Street and Charing Cross. Coming in from the south of London, most of them, as the Minister knows only too well, do not work in north London; they work around Westminster or Victoria, or in the City around Cannon Street. They are used to catching a train to one of the riverbank termini and then walking, or even taking a fold-up bike and cycling, to work. My constituents are going to be made to pay higher prices to travel to a station they do not want to go to and then pay a tube fare to get back to the place where they actually want to be, thus adding time to their journey. The bottom line is that my constituents are going to pay more for less.
	The trains from east Kent are now slower than they were in 1927. I have looked at the timetable. It takes about an hour and 40 minutes to get by train from Thanet to Londona journey of about 70 miles. I am not a genius with figures, but that suggests a speed of between 30 and 40 mph, which is not very fast in this day and age. The high-speed link, we are told, will knock a few minutes off the journey time from east Kent to St. Pancrasbut not to where my constituents want to be. I have travelled on this line previously; I am probably the only living person who has. British Railthat shows how long ago it wasmade the mistake of running an engineering train from Victoria to Ramsgate. It did that on old track, with old rolling stock, in one hour flat60 minutes. To be fair, to enable that to happen it had to clear a path by moving two trains in front, but the point is that it can be done. Under these proposals, it will not be done and we are facing an above-average fare increase designed to pay for a service that my constituents do not want to use.
	In a letter to my commuting constituent, Sharon Reeve from Herne Bay, the customer relations team leader for Southeastern, Frances Maynard, wrote:
	the 2009 increase for Southeastern 'regulated' fares (season tickets and many Anytime tickets) is based on the retail price index (RPI) plus another three per cent. This is the formula that was set by the Department of Transport when the franchise began in...2006.
	The July 2008 RPI figure is used, which was five per cent.
	much higher than inflation now. She goes on:
	So the average increase for Southeastern regulated fares is eight per cent. This is an average, so some will be more and others will be less.
	Surprise, surprisefor the Kent coast line it is more, as it was last year and the year before. Why? Because, says Frances Maynard:
	Government's policy is for passengers to pay more towards the cost of their rail travel and taxpayers to contribute less. So as regulated fares increase the subsidy given by Government to Southeastern decreases.
	In the franchise briefing document issued by the Strategic Rail Authority before Southeastern took over the franchise, it was made plain that these increases and the Government's decrease in subsidy could be phased over the lifetime of the franchise. What Southeastern is doingit is blindingly obviousis loading the costs up front as far and as hard as it possibly can in order to get as much money in as quickly as it possibly can.
	Sadly, the Government have declined to make available the models for those fares and journey times, and for the number of trains running on those lines to individual stationssuch as Victoria, Charing Cross, Cannon Street and St. Pancrason the grounds that it might be commercially sensitive with regard to Southeastern and Govia. Govia is a good name because if someone wants to get to Cannon Street, Victoria, Whitehall or the City, they will have to go via St. Pancras, and then do so again on the way back home, to get where they wanted to be. That does not sound like progress to me.
	The Minister, who is a personal friend, has to come up with some answers. He knows the situation only too well because his constituents use the same line as mine they just catch it a bit closer to London where the trains are a bit more crowded. They, too, will get less for more and will have to travel to a station they do not want to go to. I suggest that his majority isif he will pardon the punon the line, literally. In this case, it is the Kent coast line. When he replies, I hope he will explain to me how he will explain to his constituents who travel from Kent why they are being burdened with the costs of journeys they do not want to make.

Greg Clark: I congratulate my hon. Friend the Member for Bexhill and Battle (Gregory Barker) on securing this important debate. Commuters in Tunbridge Wells suffered a double whammy at the beginning of the year because they faced fare increases of 10 per cent., while capacity on some of the peak services has been reduced by 20 per cent. It is as if they are subject to a bizarre game of musical chairs in which they pay more for a seat and it then gets taken away from them. I shall address both of those points in turn.
	As my hon. Friend eloquently said, we face fare increases well above inflation. The increase is 10 per cent. in Tunbridge Wells this year, following one of 7.9 per cent. the previous year. We can look forward to increases for a further two years, all because the Government, in the tendering document, required Southeastern customers to pay for the costs of the channel tunnel rail link. On the Hastings line, from Sevenoaks right down to Hastings, none of our constituents would benefit from the high-speed line. It is fantastic that it is going ahead, and those who can benefit from it clearly have cause for celebration, but no one in Tunbridge Wells, High Brooms, Tonbridge or any of the stations used by my constituents will benefit. Indeed, we actively disbenefit in the following way.
	Journey times from Ashford, which now last 83 minutes on average, will fall to 36 minutes. In so far as there is competition between our towns, Ashford will be more attractive in commuting terms than Tunbridge Wells. We think we have manifest charms that might make up for that, and we are confident that we can hold our own, but nevertheless it is galling for my constituents that they will have no reduction in journey time, while paying the same or more than commuters in Ashford.
	As my hon. Friend pointed out, in Hastings the situation is even worse. MPs representing constituents along the A21 and the line from Sevenoaks to Hastings have come together with the district and county councils in the area to create a reference group to promote the importance of improving transport links in the region. One of the consequences of the fare increases and the new high-speed rail line is that Hastings will be more isolated in transport terms than it has been to date. Ramsgate will have a high-speed rail link, and people will be able to get to London much faster; train services from Brighton to London are much better than they are from Hastings; and the relative position of a town such as Hastings, which needs all the help it can get to regenerate itself and is making great efforts in that regard, will be relatively disadvantaged. We can add to that continuing problems with congestion on the A21, which desperately needs an upgrade in the form of a dual carriageway between Tonbridge and Pembury, and between Kippings Cross and Lamberhurst. Until we get that improvement, and as a result of the fare increases, Hastings will be further disadvantaged by the changes.
	I shall deal with overcrowding, although I am disappointed to have to raise the issue. It is important that we get value for money. My constituents feel that the service provided by Southeastern over the past few years was much better than that provided under the Connex South Eastern franchise; there was an improvement. There have been improvements to stations, toothey have been painted and brought up to date. The service has deteriorated recently, but up until then, the service was more reliable than in the past. Given that background, it disappoints me that without any fanfarewithout any publicity at all, as far as I can seethe decision was taken to reduce capacity from 10 carriages to eight on five peak-time trains servicing Tunbridge Wells. The reason that Southeastern gives for that is that it needed to react to deteriorating economic conditions.
	Southeastern is implying a radical cut of 20 per cent. in the number of commutersa cut that I am certain has not taken place, because the consequence of the move made in recent weeks is that peak-time trains have become even more crowded. Of the five trains between 6.56 and 7.56 in the morning that link Tunbridge Wells and Charing Cross, three have had their carriage numbers reduced from 10 to eight. Let me share some of the consequences with the House.
	My constituent Philip Ashworth wrote to me on the issue. Again, he was not informed of the policy decision. He says:
	Monday 5th Jan...8 carriages rather than 10...commuters pack in the carriages like Sardines!
	Tuesday 6th...8 carriages rather than 10...standing all the way to London...Wednesday 7th, short rail stocktrain packed.
	Thursday 8th short rail stocktrain packed.
	And so it continues on Friday 9 January and beyond. We have a deteriorating service, but the price has rocketed.
	My constituent Chris Comorford has done calculations that show that however one looks at itwhether we base the calculation on distance travelled or the speed of the serviceTunbridge Wells is becoming one of the most expensive places in the south-east to commute from, mile for mile or minute for minute. For example, commuters travel an additional 4 miles to get to Reading, but they do so at more than twice the average speed. The journey from Tunbridge Wells to London is twice as expensive. We are paying more money and getting a poorer service. We need to address that before measures to ensure sustainable transport are affected in the wrong way. We want people on the rails, not the roads. The Tunbridge Wells and District Railway Travellers Association, led by Martin Lewis, shares my concerns and those of my constituents on the issue.
	I close by putting to the Minister a suggestion made by my constituent, Mr. Ashworth:
	Can I suggest that we are able to buy 3rd class tickets, standing room only at half current price, perhaps commuters would not feel so grieved!
	I hope it will not come to that. I hope the Minister will be able to exert his influence on Southeastern. I hope that Charles Horton and his staff at that company hear my constituents' stories and learn of the situation that they face, and so review the decision to cut peak-time capacity. The company has promised us extra trains by December 2009two extra trains from Tunbridge Wells to Londonso it seems perverse to squeeze capacity now only to increase it later. I hope the Minister can use his good offices to influence the company, and I hope the company listens to constituents and returns to the high levels of service that, until recent months, we had come to expect from it.

Charles Hendry: I am delighted to support my hon. Friend the Member for Bexhill and Battle (Gregory Barker) in this debate. You will see, Mr. Deputy Speaker, on my Bench the epicentre of sensible transport policy for the Tunbridge Wells, Bexhill and Battle, and Wealden triangle; we are the people driving forward change and making sure that the interests of our constituents are well-represented. I agree with every word my hon. Friend said. What he said applied to many of my constituents. Many of them use the Hastings line. They get on at Frant or Wadhurst, but the train is often full by that time. They have to park a significant distance from the stations because of inadequate parking facilities in the area, and they are paying more for the privilege all the time.
	My constituency is served by three lines. The line to Hastings is one, the Uckfield line is anotherone would be forgiven for thinking it a tourist route it is so slow; it takes about an hour and an quarter to do the 40 miles from Uckfield to Londonand the third is the line down to Lewes and Eastbourne. Those lines present different problems, but the challenge for my constituents is that, as others have said of their constituents, they are paying more and getting less for it.
	We have to be fair to Southern. On the Uckfield line in particular we have seen a dramatic improvement in the quality of the service in the seven years in which I have been the MP. Since Southern took over the franchise, we have had trains that largely run on time, which are clean and which have friendly staff. The travelling experience on that line has been significantly enhanced, although that does not apply to the other lines in quite the same way. The consequence of that improved service is that the popularity of those lines has grown, and there is now significant overcrowding. People travelling from London down to Uckfield find that they may stand as far as Eridge or Crowborough. People getting on in the morning often have to stand for as much as an hour of the journey up to London. That is not an acceptable level of service for people to expect.
	If people were getting more in return for the money that they are paying, they would not mind so much, but we are not seeing the longer trains. We ought to have longer trains to accommodate the passengers who are using the services. We ought to be seeing more trains later in the evening, too, to ensure that people can come up to London and get back, having gone to the theatre or been for an evening out. We ought also to be seeing more regular trains. However, we are not seeing those improvements in the service; we are seeing a reduction in the service. On the line that serves the constituency of the hon. Member for Lewes (Norman Baker), which runs down to Polegate, where people in Hailsham would catch the train, people are seeing a reduction in the number of trains offered. The service continues to be chipped away at, when it should be being improved.
	One fundamental problem is that although people are paying a lot of money for their train tickets and a significant amount to park, they simply cannot park, because of the inadequate number of parking spaces available. On the Uckfield line, that problem starts at Uckfield, where we have 14 parking spaces. That means that people cannot park there, so they go up the line to Buxted, parking all around the village, causing huge amounts of disruption and damaging the interests of local businesses, because shoppers cannot park outside. The car parks will be largely full as far up the line as Eridge, where there will typically be 100 cars parked on the verges round the station, blocking people's driveways and causing huge inconvenience. If people are paying premium prices for the service, they should be able to expect the right investment to go into improving the overall travelling experience.
	Indeed, people in Uckfield do not even have a station at the moment. The previous station had to be removed because it had rats. The station mistress was attacked by a rat and the station was closed as an unfit place to work, but we do not have anything else. In spite of the huge amount of money that people are paying, they do not even have a station that they can use. We are told that if a new station were put on the site, we would have to find a significant amount towards its cost from local council tax payers, who are already hard-pressed; but they should expect a station as of right.
	We are not getting the service that we expect, but there is another thing that I hope the Minister will address: this evening we are highlighting a problem that has got worse, but we are profoundly concerned that it will get worse still. We know that the Government plan to impose thousands of new houses on our constituencies over the coming years. They are not wanted. We recognise that there needs to be some additional new house building, but building on the scale proposed is absolutely without justification and will do massive damage to the beauty of our constituencies.
	What we are not getting, however, is the investment in the infrastructure to support those houses. The people in my constituency, in Bexhill and Battle, in Tunbridge Wells and elsewhere would be much more willing to accept the imposition of new housing on our constituencies if we felt that the investment in the rail infrastructure was going to be made to enable people to travel to where they need to go. What we have seen, however, in the discussions that we have had about reopening the rail link between Uckfield and Lewes, is that the Government's formula for the proposals means that we cannot secure funding to open just a 7-mile stretch of line that would significantly enhance the train service in the whole south-east.
	I ask the Minister not only to look at the problems that people are facing today, but to look forward and to try to reassure us that the Government are thinking about a sustainable transport policy. At the moment, we feel that we are constantly being charged more for the travelling experience, but that the experience itself is not getting better.

Norman Baker: I must stress that I am speaking in my capacity as a local Member for East Sussex, rather than in any Front-Bench role for the Liberal Democrats.
	I welcome the opening comments made by the hon. Member for Bexhill and Battle (Gregory Barker). I agreed with virtually every word that he said. This is an important issue, and it should affect all local MPs in East Sussex, Kent and elsewhere. I therefore share the disappointment that there are no Back-Bench Labour MPs here from any of the constituencies that are affected, such as those in Brighton and Hastings. However, 100 per cent. of the Liberal Democrat MPs from Kent and Sussex are here in the Chamber tonight.
	When I undertook a survey of my constituents in Lewes, Seaford, Newhaven and Polegate before Christmas to ask their views on the railways, there was general acceptance that the quality of the carriages had increased, that the trains were more reliable and to echo the words of the hon. Member for Wealden (Charles Hendry)that Southeastern seemed to have done a reasonable job with the railway. One concern stood out among the plaudits, however: the cost of travelling by train. That was the issue of greatest concern to 68 per cent. of those who responded to my survey.
	That is not entirely surprising. The formula referred to by the hon. Member for Bexhill and Battle, which pushes the cost of travelling by train up above inflation every year, is simply not acceptable in terms of value for money or the consequences for the rail passenger, who is caned every year. It is certainly not sensible in regard to tackling the climate challenge that we all face. The right hon. Member for North-West Hampshire (Sir George Young) intervened earlier to point out that the formula used to be RPI minus 1, but that it is now RPI plus 1. It is the Government's policy to push up rail fares above inflation every year, and that is neither sensible nor defensible. It is even worse than that, however, because the cost of travelling by train increases even more for those paying unregulated fares, which have gone up beyond RPI plus 1. Although it does not affect my constituency, I also sympathise with the problem mentioned by the hon. Member for Bexhill and Battle with the consequences of the Javelin train in his part of the world.
	We are facing economic hardship at the moment, as all Members know. People are being made redundant and losing their jobs day after day. When such pressures have existed before, the Government have reacted. For example, in three years out of the past 10, they have reacted by freezing fuel duty for motorists, following hard campaigning, yet they have never frozen rail fares for passengers. There is one rule for the motorist and another for the train passenger.
	If we look at the figures for the past 30 years, we see that the cost of travelling by train has risen by roughly 70 per cent. above inflation in real terms in that period, and the cost of travelling by bus has risen by even more, but the cost of motoring has gone down in real terms. The rail passengers in my constituency ask why the Government occasionally freeze fuel duty when the cost of motoring is going down, when they never freeze the cost of travelling by train, even though it is going up beyond the level of inflation. The Government really need to get a handle on that. I suggested earlier this year that we should have a freeze on rail fares, which could have been paid for simply by cancelling 3 miles of motorway widening. That would have paid for a fares freeze this year, and if people were asked which they would prefer, I think I know what the answer would be.
	The cost of rail travel in this country is also high compared to that in other countries. The hon. Member for Bexhill and Battle kindly referred to some Lib Dem researchwithout mentioning that it was Lib Dem researchin his opening remarks. The cost of a journey in Serbia that is the equivalent of travelling from John O'Groats to London would get someone from here to Basildon in this country. Would Members rather be in John O'Groats or Basildon, in terms of getting value for money when travelling from London? That money buys a journey of 512 miles in Serbia, compared with one of 26 miles here. I am afraid that the Government are pricing people off the railways, and that is a transport policy that does not make sense.
	We need to recognise that more people want to travel by train. Some have no alternative, including the commuters in my part of the world, but many people want to travel by train. Trains are attracting more and more passengers, yet the Government's answer is either to force people off the railways by pushing the prices up or to allow the increase in cattle-truck conditions that we are now seeing on lines all around London and elsewhere in the country. More people are now standing for longer distances on trains and paying more for the privilege in the south-east and in my constituency. That cannot be right in any shape or form. As the hon. Member for Bexhill and Battle rightly said, the Government are extracting more money from the rail companies and, through them, from passengers in order to reduce the call on the Treasury purse. It is a tax on the railway passenger and it is also a tax on good environmental practice.
	My constituents in Lewes are very keen on protecting the environmentit is a major theme in my postbagand they are saying that they want to travel by train and want to see the link increasingly made between carbon emissions and the price paid for a particular activity. How can it have become cheaper over the last 10 years to travel by air, with its carbon-busting implications, and far more expensive to travel by rail, when we surely want to see the opposite occurring if we are going to tackle climate change? How are the Government going to reach their target of 80 per cent. carbon reductions by 2050 when the transport sector contributes about a quarter of our emissions and the Government's policy is to deter people from using lower-carbon means of transport? That simply does not make sense.
	My constituents also tell me that if they have to pay above inflation for their train tickets, the deal must be that they get a better service in returnnot a service somewhere else in the country, but a service for people in Lewes who have to pay for tickets on their particular line. The reality is that the service is getting worse, with overcrowding and with the new timetables having not been well received in my constituency either. Journey times are getting worse and the service is getting more unreliable. The Government's interfering with the Gatwick Express timetable has also thrown the whole thing out of kilter, making it difficult for trains to run on time and meet their punctuality targets.
	Neither has the situation been helped by the Government's failure to invest in enhancements. It would be something if my constituents could see enhancements in return for the ticket prices that they have to pay, but we are not seeing that. We are not seeing the Lewes-Uckfield line reopen; although it has massive support from all three parties locally, all the local MPs and local councillors of all persuasions, it is not on the Government's agenda. We are not seeing any efforts made either to tackle the dreadful overcrowding between Brighton and Ashford. Diesel trainstwo-car diesel trainsgo through my constituency and that of the hon. Member for Bexhill and Battle, but regular announcements at Lewes station warn people not to get on the train because it is too crowded. They are told to wait for the next one, even though it is an hour away on that service. Unless the Government want to resort to having Japanese-style employees to push people on to trains, they should seriously address the issue and get some more carriages. Yet there is no indication of that. Southern wanted more carriages and the Government blocked them. That is this Government's record on local services in my constituency. If we are to have rail fare increases above inflation, let us have some improvements to the service to justify them.
	One thing that the Government could do with the Southern franchise is eliminate some of the padding in the timetable. My constituents tell me that they are fed up with waiting nine minutes at Haywards Heath for the trains to split or to join, when Network Rail requires only three minutes operationally to do it. My constituents are fed up with waiting three minutes at Clapham Junction because the trains arrive too early and do not want to go to Victoria when no platform is available. My constituents are fed up with going to Polegate, arriving at Lewes on the way back and waiting seven minutes there for the trains to depart. There is so much slack in the timetable in order to ensure that the train arrives on time that the punctuality figures have, of course, improved dramatically. The shortest journey time from Lewes to London in 1989 when I began commuting was 53 minutes on a slam-door train. The shortest journey time now is one hour and three minutes, and the average journey time is one hour and nine minutes. There is padding in the service. If fares are going above inflation, we need to improve the service as well.
	I am grateful to the hon. Member for Bexhill and Battle for providing the opportunity to raise this matter tonight and I thank him for his contribution. I note the support from both Opposition parties for a more sensible strategy. I note the support from elected people and, indeed, from unelected people: I have never heard of this Amber Rudd; she sounds a bit like a rail signal of some sort, but I am sure she is campaigning very actively for improvements, just like the rest of us.
	Let me end by making a political point. If the Government want to rescue some of the 13 seats in the south-east that they are in danger of losing at the next electionthey are all quite marginal, including the Minister'sthey had better start delivering on some of the issues that are important to people in the south-east, such as train fares. They have not done that so far.

Andrew Pelling: I, too, congratulate the hon. Member for Bexhill and Battle (Gregory Barker) on securing the debate. Those of us who represent Croydon seats are well aware that Croydon's economic success relies heavily on the railway. We know how much the history of the town's expansion has depended on the main line, and how much its continuing success depends on that line and on the success of East Croydon station, a station blessed with hard-working and excellent platform staff.
	I strongly endorse what was said by the hon. Member for Lewes (Norman Baker). I especially agreed with two of his comments. I believe that people's experiences of commuting are important to their perceptions of the improvement or otherwise of public services, and I believe that there is an impact on the popularity of Government when commuters spend two hours a day, five days a week, experiencing what are at times extremely crowded rail services. People are very disappointed when they find themselves paying higher fares for rush-hour travel on trains which often operateon purposeat 120 or 130 per cent. of capacity.
	One of my local railway stations is South Croydon. The largest unregulated increase in fares at that station is 10 per cent. Other Members have spoken specifically about Southeastern provision, but my constituents and I are not paying for the introduction of the Javelin; what we are experiencing is just a plain increase in fares. It is the unexpected juxtaposition of the Government's decision to introduce fare increases in addition to increases related to the retail prices index with a significant peak in inflation during the summer, followed by a further significant deflation, that has proved so punishing. The fare increases were not advertised by Southern by means of leaflets or notices at East Croydon station, although there were notices at South Croydon. I think it deplorable that they were not advertisedperhaps because the operator was so ashamed about them, and so aware of the detrimental effect that they would have on business.
	It is also particularly galling for those of us who hold longer-term tickets such as seven-day travel cards to note that we still have a tradition in this country of paying for a service on Christmas day or Boxing day, but either are not receiving any service or receiving an inadequate service. I do not see why it should not be possible to buy a seven-day travel card covering Christmas day or Boxing day but making them exempt, and allowing the extra days' travel to be added at the end of the seven-day period. I do not believe that the current lack of provision is due to some kind of religious observance; I think that it has more to do with the tradition that has accepted that there should be a Christmas present for the train operators. I calculate that given the number of people who hold travel cards, at least 4 million is probably paid each Christmas for services that are not provided.
	As well as paying a great deal for their commute to London, commuters from Croydon face the prospect of any Thameslink trains from London Bridge after 7 pm being hugely overcrowded, and of other mainline services being gradually withdrawn. Those who travel from Victoria to many of the destinations mentioned by Members this evening, particularly East Croydon, will find that platforms 15 to 19 are still being used as sidings, and they must walk virtually halfway to Croydon to board a train in the first place.
	The hon. Member for Lewes spoke of the distorting effect that the altered Gatwick Express service is having on services to Croydon and to many stations south of it. It is especially galling that the Government thought it appropriate to support the judgments of others that further extension of the Gatwick Express should take place, and that strong emphasis should be put on it. I sometimes countperhaps it is rather anorak-like of methe number of passengers using the Gatwick Express, and I frequently find that fewer than 40 are doing so. Priority is given to that service on the tracks from Victoria to Croydon and beyond to an extent that compromises the capacity, which means that passengers who are paying high fares have to stand on inadequate services.
	The reduction in quality of service is partly linked to the Gatwick Express and partly to other changes made to the Coulsdon South service. For example, the direct service from East Croydon to Crystal Palace has been withdrawn. That is inappropriate when we are trying to encourage the use of public transport and at the same time as it has been announced that the proposed tram link extension to Crystal Palace will not happen. However, Mayor Boris Johnson has subsequently announced that he is at least willing to campaign for additional moneys from the Government to provide that extension after all.
	We need improvements to the Crystal Palace service, and many Labour Members with constituencies to the north of mine have been campaigning strongly on the need to maintain the best quality of metro services in the area, and in some cases they have gathered large online petitions. One cheap solution might be to allow reverse running on the railway lines that run northwards from Crystal Palace and to re-open platform 7 on Norwood Junction station. There is a strong argument too for additional platforms at East Croydon. Among the greatest constraints on the rail services to stations such as Lewes are the lack of capacity at London Bridge, the slowness of the introduction of the Thameslink 2000 project, the constraints at Windmill Bridge junction and the lack of two additional platforms at East Croydon station. I would much rather see additional platforms at East Croydon station than the preposterous 52-storey residential property development that is proposed for the area next to the station. It is redolent of the 1960s, and that land should be used for additional platforms to improve public transport. That would improve the capacity for trains from London to all the areas served by all those hon. Members who have spoken tonight.
	Of course, we should not be entirely critical because some improvements have been made. For example, the removal of the slam-door trains has improved the ride and the quality of the environment on the trains so we no longer suffer so much in hot summers. However, it is not appropriate for passengers to have to clamber over each other to reach seats that are too small.
	The hon. Member for Bexhill and Battle (Gregory Barker) mentioned the impact of short-term franchises. Improvements have resulted from those franchisesone of my local stations has been paintedbut they are not enough. We need real investment in stations such as South Croydon and Waddon, so thatfor examplepeople with buggies do not have to jump down to low platforms.
	Much investment is needed before our constituents can enjoy a commute that is reasonably comfortable, so that someone who is not entirely well can face it in the morning. It is therefore important for the Minister to explain why increases of up to 10 per cent. have been introduced when the services have seen no real improvement.

Christopher Chope: It is a pleasure to follow my hon. Friends' excellent contributions to the debate. Although my constituency is just in the south-west, the incremental basis for fares means that ours are determined by those that South West Trains sets in the south-eastern part of its line, up as far as New Milton. Much as people might like to start their journey to London in Hinton Admiral, and pay less than the cost of the journey from New Milton to London, they have to pay more. I therefore believe that I have a legitimate interest in participating in the debate.
	In the south-east, train fares between New Milton and Waterloo have increased significantly above the rate of inflation because of the Government's policy of using a stealth tax against a captive commuter population. Although there are nothing like as many commuters to London from my constituency as from some of my hon. Friends' constituencies, the position of those commuters in the current economic climate is dire. They cannot afford to pay such increases out of their taxed income.
	I can imagine the Under-Secretary asking why those commuters do not move closer to London. That would involve selling their houses in a difficult market, and having to buy another house, thus incurring the steep penalties that the Government have imposed on house buyers through increases in stamp duty. Those people are squeezed all round. One might ask why they do not try to get a job more locally, but in the current climate, anyone who has a job wants to hang on to it, and not risk losing it in the hope of getting another somewhere else.
	The position of my constituents, like so many others, is that they are captive customers of the railway system. The Government are behaving uncharitably in the current climate in imposing above-inflation fare increases on those people. I have talked about regulated fares, but the increases in unregulated fares are even greater.
	I would like the Under-Secretary to deal with access to unregulated fares. Some of the best bargains on the railways can be obtained by going to the ticket office and saying, I want to travel next week;or next monthwhat's the best deal? However, that depends on the ticket office's being open during advertised hours. I went to the ticket office at Hinton Admiral to try to get a ticket to go to Scotland. Although the ticket office should have been openit is not open that oftenit was shut. I then went to Christchurch, and I was lucky because there was only a small window of opportunity due to that ticket office's being manned for six hours a day. That is completely contrary to the Government's agreement with the franchiseesSouth West Trains being the franchisee in this case.
	Something bizarre is happening. A consultation about ticket offices' opening hours took place. In advance of the results, South West Trains withdrew staff from the ticket offices and reduced the opening hours so that they were even shorter than those for which it had sought permission. That makes a mockery of the Government's consultation. I hope that the Under-Secretary recognises that ticket offices that are open regularly are fundamental for people who want to take advantage of the best deals on the railways. Commuters who use unregulated fares and travel off peak are penalised if they buy their ticket on the day. People in my constituency therefore understandably prefer to book in advance if they can. To do so, they must have a system that allows that to happen. That means having a ticket office that is open regularly.
	I make a plea to the Under-Secretary to tackle the problem, and to consider the longer-term consequences of imposing stealth taxes on a captive commuter population. I hope that, even if he has no Back-Bench support this evening, he will show some sympathy for our hard-pressed constituents.
	 Motion lapsed (Standing Order No. 9(3)).
	 Motion made, and Question proposed, That this House do now adjourn.( Mr. Watts.)

John Stanley: This is a timely debate, and I am grateful to my hon. Friend the Member for Bexhill and Battle (Gregory Barker) for initiating it.
	Rail privatisation in the 1990s fundamentally changed the requirements for the regulation of rail fares. As long as the rail system was in public ownership, it was, effectively, possible for the Treasury to determine the rate at which fares increased, but once the railways were transferred to the private sector, a commercial monopoly was, in effect, created. For those of us who represent south-east commuting constituencies, our constituents are basically captives of monopolies: people who live in Tonbridge have to commute from Tonbridge, and people who live in Borough Green or West Malling have to commute from those villages unless they want to drive all around Kent.
	When the railways were privatised, it was clear to me that privatisation would be acceptable to my constituents only if it was accompanied by a proper system of regulation of rail fares. I very much supported privatisation as a policy, but I was one of three Conservative Members who declined to support the privatisation Bill on Third Reading: I was not willing to do so until I was satisfied that a proper system of fare regulation was in place. I might add that the other two Conservative Members were my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) and the late Robert Adley, who knew more about trains than anybody else in this House and pretty well everyone in the country. I am very glad to be able to say that following the passage of the legislation, the then Government did introduce a rigorous system of regulation of rail fares to protect the commuting public. As has been mentioned, for three years from 1 January 1996 rail fares were regulated in line with inflationthe retail prices indexand for the following four years the regulation was 1 per cent. below RPI. Therefore, for the first seven years after privatisation a full and effective system of fare regulation was in place. That, I believe, was the right and proper way of balancing privatisation with protection of the travelling public against exploitation by, in effect, a private sector commercial monopoly.
	Deeply regrettably, the Government have almost entirely dismantled the system of rail fare regulation that they inherited. They have, in effect, created for the rail operating companies an open-house situation in terms of the rail travelling public. Worse still, at the same time as dismantling the system of rail fare regulation, the Government have, in a very well concealed manner, fundamentally reversed the policy that has been followed throughout the entire post-war period on rail subsidy of commuter lines into London. Everybody knows that it is not possible to operate a peak demand system economically; if we pay for the peaks, we will have a great deal of uneconomic extra capacity that will be on the railway lines for the rest of the day, and the staff to man it. For that reason, successive Governments since 1945 have found it necessary to ensure that the rail companies running commuter services into London have a measure of Treasury subsidy. What the Government have donevery little attention is paid to this, because they have kept it well concealedis embark on a process of reducing year by year the level of taxpayer subsidy, and they are going even further than that. They are going from reducing subsidy to the point of elimination to requiring train operating companies also to pay a premiumin effect, a taxback to the Treasury for the privilege of operating the franchises.
	That situation was exposed to me by the managing director of Southeastern, Charles Horton, who wrote to me on 23 July 2008 as follows:
	With regard to subsidy, that given to Southeastern started at 139.9M in year one and will decline to 24.7M in year seven. In year eight, we will be expected to pay a premium of 9.3M to the DfT to operate the franchise.
	I put it to the Minister that it is outrageous for the Treasury not merely to have discontinued paying any subsidy to inherently uneconomic railway linesthe commuter lines into Londonbut to go further by taxing the rail operating companies for the privilege of operating the franchises. This is a gross stealth tax on the rail travelling public who journey into London. The policy should be stopped and reversed.
	I have referred to the position of Southeastern, but Southern, too, provides a major commuter service, including the Uckfield line in my constituency. Southern's franchise is up for bidding, so will the Minister tell the House whether those making bids are being asked to do so on the basis that they will have no subsidy from the Government and possibly at the end of the franchise period will also be asked, like Southeastern, to pay a premiuma stealth taxback to the Government and the Treasury that can be financed only out of the pockets of the luckless rail travelling public? I must put it to the Minister that the Government's policy, as far as the thousands of commuters in the south-east are concerned, is resulting in one very clear trend: our commutersour constituentsare paying ever more for ever less.

Paul Clark: We have had a good and wide-ranging debate, and I am delighted to congratulate the hon. Member for Bexhill and Battle (Gregory Barker) on securing it, because it has given us a real opportunity to discuss the issues facing rail operations in the south-east. As has been shown today, he, like many other hon. Members, has a keen interest in the subject. I include the hon. Member for Croydon, Central (Mr. Pelling), who said that some Labour colleagues whose constituencies lie to the north of his had been arguing about rail travel. I assure him that other hon. Members have raised various issues, including my hon. Friend the Member for Hastings and Rye (Michael Jabez Foster), who just before Christmas addressed regeneration and travel in his constituency.
	I intend to deal with as many of the points raised as fully as possible in the time available, but I must say at the outset that over the decade that we have been in government there has been a 50 per cent. increase in the number of people travelling on the railways. Secondly, unprecedented levels of investment have gone into our railways, day in, day out, to rectify the substantial underinvestment that had lasted for decades. In addition, there has been investment in rolling stock, and in High Speed 1, which has been pilloried by Conservative Members. It was the first new railway line to be built in this country in more than a century, and it was delivered on time and on budget.
	I remind right hon. and hon. Members that my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), who was then the Deputy Prime Minister, came to the House to announce the renegotiation of that contract, because it was in a mess when we picked it up. He ensured that we ended up with a high-speed line that is providing essential services to businesses and individuals in the constituencies of Members who have spoken in the debate. It is used for leisure and business purposes, and it brings us into the 21st century.
	Let us remember that the privatisation of the railways happened in 1995-96. I noted carefully the comments of the right hon. Member for Tonbridge and Malling (Sir John Stanley) about why he did not support his own party's Government on the privatisation Bill, to which I shall return shortly. Since the privatisation was forced through, contracts have always governed what rail operators that are private companies can and cannot do. We have sought to renegotiate those contracts to end up with a balanced situation with better punctuality, better reliability and more investment. There is also regulation of fareswe have not abandoned that requirement.
	We have sought to find a balanced position, and the current position answers many of the points made by Opposition Members. Those who have been honest have said that their constituents say, whether in surveys or to them in person, that there have been improvements to the service that we provide, to rolling stock and to reliability. I shall come to the issue of padding, which the hon. Member for Lewes (Norman Baker) mentioned. Such improvements cannot happen without investment in the rail services that are so important to the constituents of the Members present, including mine in Gillingham and Rainham.
	We have limited most fare increases to an overall RPI plus 1 per cent. cap. However, that cap is applied to a group of fares called a basket, and individual fares may increase by up to 5 per cent. more than that as long as the overall cap is not exceeded. I emphasise that it is a capit is up to the individual train operating companies, and they do not have to increase prices by that much. They have that flexibility to vary fares in their fares basket, allowing an increase of up to 5 per cent. above the overall cap.
	There are two exceptions to that. Southeastern has a higher overall cap of RPI plus 3 per cent. for five years from 2007, in recognition of the fact that almost 693 million has already been invested in new trains for Southeastern passengers and in the infrastructure needed to support them. Those are not the high-speed trains that are coming into service in December but replacements for the old slam-door stock. The only Member to refer to that old stock in his contribution was the hon. Member for Croydon, Central, but I am sure I do not need to remind Members that Southeastern services had some of the oldest rolling stock. The old slam-door stock from the 1960s and '70s was unwanted by our travelling constituents and by those who used the services. That replacement had to be paid for in a sensible way. The current regime also addresses the historically low fares on Southeastern, normalising them with those for similar services.
	The right hon. Member for North-West Hampshire (Sir George Young)I am sorry that he is no longer in his placesaid that the cap used to be RPI minus 1 per cent. Indeed, it did. I could take hon. Members back to the days when a franchisee invariably missed targets, which meant that every time targets were met for season ticket holders, they got a 5 per cent. rebate and the subsidy from the public purse went up. All the time that that was happening, there was a reinforcement of the under-investment in our rail service that, with due respect, we got so used to under the Government led by Conservative Members during those years. That was the situation we faced with the service on the Kent and Sussex lines. There had been substantial under-investment and the franchisee moneys that were coming in through the fare box were falling as a result.
	Hon. Members should not think that Southeastern is the only company to have a franchise set at RPI plus 3 per cent. Indeed, the other exception is the Northern Rail franchise for the West Yorkshire passenger transport executive area, where fares, for similar reasons, are set at RPI plus 3 per cent. Leeds fares have a higher cap, like those for Southeastern, from 2007 until the end of the Northern franchise and that money has funded investment in additional trains in and around the Leeds area.

Gregory Barker: Are the members of the other community who have had the additional premium put on their fare increases paying for services that they will see the benefit of or are they, like my constituents and so many others who are being represented here tonight, paying for improvements elsewhere?

Paul Clark: It is unfortunate that the hon. Gentleman did not listen to what I just said. The RPI plus 3 per cent. is invariably there to cover the 690-odd million that is being invested principally in replacing rolling stock, such as in the case of the slam-door services. It is not for use on the Javelin trains that many hon. Members referred to.
	The hon. Member for Tunbridge Wells (Greg Clark) and others said that their constituents will have no use of the High Speed 1 service. The hon. Gentleman will be aware that although his constituents may not have direct access to that service, nine trains run in the morning peak to London Bridge and nine run to London Charing Cross and from December 2009, when the high speed trains come into being, the frequency of that service will increase to 13 and 11 trains respectively. Additional services will be operated because the introduction of High Speed 1 elsewhere will free up capacity, so capacity improvements will occur through the investment in High Speed 1 and domestic services.

Greg Clark: The Minister will recall that I mentioned that there was that prospect in December. Of course, the benefit of that increased capacity will be swept away if the trains are going to be 20 per cent. shorter.

Paul Clark: I shall certainly come to the issue of the reduction in the length of the trains and the steps that I took as soon as I heard that that was the case.

Roger Gale: The Minister has referred to an increase in some services from some places. Does he accept that from east Kent there has been a diminution of the services to Victoria and Cannon Street?

Paul Clark: Clearly, there is a need to manage the demand from the hon. Gentleman's constituents and from the constituents of other hon. Members. People travelling by train clearly find it an attractive option, because the number of people doing so has increased substantially. I have already said that the travelling public have increased by 50 per cent. over the past decade. One way of increasing the number of spaces is to increase the route options through measures such as High Speed 1 or to increase the length of trains, notwithstanding the comments that have been made by the hon. Member for Tunbridge Wells.
	Let me move on to one or two other items, as I shall come back to the issues that have been raised so far. I have said already that the RPI minus 1 formula was leading to substantial under-investment and that we could not have had the improvements that have been made if we had retained it.
	The hon. Member for Bexhill and Battle said that there had been a decade of under-investment in our railways, but one has only to look at the record that I have set out to see that that is clearly nonsense. The High Speed 1 and rolling stock changes that I described have been accompanied by the 8.8 billion that has been put into the west coast main line. In addition, 10 million has been devoted to increasing the number of carriages, and more carriages will be delivered under the fiscal stimulus package announced a few weeks ago by my right hon. Friend the Chancellor. Moreover, my right hon. Friend the Secretary of State for Transport announced in the House last Thursday that he intended to look at the further electrification of the great western and midland main lines. All that deals with the hon. Gentleman's suggestion that the Government have no long-term plans for rail transport or for ensuring high-speed rail links between London and the midlands, and beyond.
	The hon. Member for Wealden (Charles Hendry) spoke about inadequate parking, although he said that the service from Uckfield had improved. The Government do not regulate parking: we are sometimes blamed for regulating too much, but this time we have been blamed for not doing enough about providing more parking, which is clearly a matter for the private companies involved. I will not enter into the debate about housing provision, but I will point out that we have changed the regional funding allocation process. Local authorities are now able to look in a far more joined-up way at their requirements for housing, business development and transport, and to make their decisions and organise their priorities accordingly.
	The hon. Member for Lewes said that his survey of residents showed that there had been improvements, but that his constituents were concerned about fare rises. That is absolutely understandable, as no one ever likes a price increase. Asked whether they are for or against a rise, people of course will say that they are against it. I recognise the difficulties that people face, especially at this time.

Norman Baker: On a point of clarification, I must tell the Minister that the survey was carried out in December, before the rises came in.

Paul Clark: The hon. Gentleman claimed that the rises were not always known about but, with due respect, I must tell him that it was well known that they were being introduced. They were announced in November, as I well remember.
	The vast majority of travelsome 60 per cent.is undertaken on regulated fares, while any-time unregulated fares apply to approximately 20 per cent. of all travel. The hon. Member for Lewes made a comparison with our ability to freeze fuel duty, but that is directly under our control. Although it seems to have escaped his memory, I know that he is well aware that we are talking here about private companies, with which the Government have legally binding contracts. They are in a long-term business, and they know that they have to use investment to make the railway work effectively and efficiently.
	The hon. Gentleman said that not extending the motorways would allow us to pay for a freeze in rail fares and that everyone preferred having money spent on the railways, but I suspect that people using the M25 might say something else. The difficulty of being in government is that we have to manage a balance between requirements. Our policy on congestion and the targets that we need to meet are set against the background of Eddington's study in respect of road and rail and in our cities and towns.
	Research shows that, between 1996 and 2008, average rail fares paid increased by 4 per cent. in real terms. The hon. Member for Lewes referred to padding. A robust timetable is far preferable to journey times that are not deliverable. The travelling public want to know what time the train will arrive, not some airy-fairy estimate of the time that it might arrive, when in reality the train arrives five, 10 or 15 minutes late because of the complexity of the system and the number of people using it.
	The hon. Member for Croydon, Central reminded us that slam-door carriages had disappeared and reported a great improvement in rides and in the environment in his area. In response to a comment from him, I reiterate that fares are not set to pay for the Javelin services. It is intended to extend Gatwick Express services to the south and to add capacity. During peak hours some Gatwick Express services pick up commuters.
	The hon. Member for Christchurch (Mr. Chope) argued that the Government were behaving uncharitably by imposing fare increases. One assumes that he voted with the last Tory Government to introduce privatisation of the railways and in order to set up private companies. Is he suggesting that we should tell them that they cannot increase fares? We have introduced a system under which we agreed a cap and which will deliver the investment and the improvements that his constituents will have seen in Christchurch, as have the constituents of other Members in the Chamber.
	I entirely agree with the hon. Gentleman about the requirement for the opening of ticket offices. Some people have moved online or to telesales, but my noble Friend and ministerial colleague, Lord Adonis, recently rejected many of the changes proposed by South West Trains because the ticket offices would not be properly staffed. That decision was taken by the Government to protect the travelling public.
	The right hon. Member for Tonbridge and Malling was one of three who opposed privatisation because there was not a robust system of fare regulation. There is now a fare regulation process in place to ensure fair and equitable investment in our railways. I remind right hon. and hon. Members that there are only two sources of funding for investment in rolling stock, staff and signallingthe taxpayer or the fare payer.

John Stanley: Will the Minister say how the Government justify requiring the train operating companies to pay a tax by way of a premium back to the Treasury during their franchise period?

Paul Clark: We have put in substantial sums, as evidenced by the letter from Charles Horton, managing director of Southeastern, which the right hon. Gentleman quoted. I find it interesting that Members in the Chamber argue that they should not ask their travelling public to pay for a service that is almost on their doorstep, albeit High Speed 1, yet consider it okay for the pensioner in Yorkshire to subsidise the travelling public in the south-east. We are seeking to achieve a sensible balance.
	The Leader of the Opposition announced a few weeks ago that there would be a 1 per cent. reduction in the Department for Transport's funding from 2009 if they were in power, which would cost it 840 million. We have been investing in the train service and we will continue to do so. We will not cut that investment, so the travelling public will have a decent service that is reliable
	 House adjourned without Question put (Standing Order No. 9(7)).